Twitter Trading & Sentiment Analysis

A standard idea in behavioral economics is that emotions play a large part in decision making and profoundly influence an agents behavior. This line of logic can be applied to the stock market, price moves are a function of the emotions of the agents in the market.

In 2011 a Paper by Johan Bollen, Huina Mao, Xiaojun Zeng called “Twitter mood predicts the stock market”, it is shown that by applying sentiment analysis to twitter posts (tweets) it is possible to gauge the current emotional state of agents. The paper then goes on to argue that the emotion of twitter is correlated with market movements and possibly even predictive of the movements.

After this landmark paper was first publish a number of hedge funds have taken the idea and produced twitter funds, the most publicly known twitter fund is run by Derwent Capital.

http://www.efinancialnews.com/story/2011-08-15/twitter-derwent-capital-hedge-fund

I plan on investigating this idea further in this blog, but if you want to get started before me the following should be useful: