There's really no middle ground on this one: Trading stocks based on data collected through Twitter is either sheer genius or abject stupidity.
Source: Twitter
Twitter
Derwent Capital Markets, a hedge fund, is going to begin trading in February based on just such a model.
Their trading model will be based on such things as " the number of times words on Twitter such as “calm” rise above or below average" According to a paper published jointly by the University of Manchester and Indiana University, "A change in emotions expressed online would be followed between two and six days later by a move in the index, the researchers said, and this information let them predict its movements with 87.6 percent accuracy."
Does the excessive precision of that citation bother you a little?
Yeah, me too.
There's really no middle ground on this one: Trading stocks based on data collected through Twitter is either sheer genius or abject stupidity.
Lots of bad ideas have distinguished intellectual pedigrees. (For example: CDOs Squared -- and the Domino Theory in Southeast Asia.) Twitter based trading sounds like precisely the kind of scheme that always works -- until it doesn't.
What if, for example, the tweens of the Twitosphere are unusually depressed over accusations that Lindsay Lohan smacked around a rehab employee {LINK}? Or they're unusually sanguine about the state of the world -- because the new Miley Cyrus album is about to drop?
A 2+20 payout to trade based on how many times the word "Happy" is Tweeted sounds like it a bit of a stretch.
But if it works, I'm going to start my own fund. My trading strategy will be based on the meandering impression I gather perusing Gawker, Facebook, and Dealbreaker.
Contributions from qualified investors are welcome.
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