This week, Derwent Capital Markets, a London investment firm, launched a $40 million hedge fund that will use Twitter to guide its investments. The world's first social media-based hedge fund will monitor a selection of tweets in real-time to feel out market sentiment before placing its bets...
The professors harvested tweets for key words and plugged them into an algorithm to determine the mood of the broader market. Using this mood index, the professors predicted the Dow's daily fluctuations in 2008 with an astounding 87 percent accuracy.
I remember smart people looking at keyword algorithms to predict asset fluctuations in the 1990's, and these projects invariably foundered. Thus, it's not a new idea, just a new medium, in this case Twitter. I'm skeptical.
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