Investors following market tweets gain more

Munich, Apr 07: Behavioural finance always had its followers. Now their legitimacy will find new followers. A study conducted by a PhD student from the Technical University of Munich discovered that investors who follow stock market tweets could achieve an average return of 15%.

Over a period of six-months, Timm Sprenger analysed 250,000 tweets. He found that there was "a striking co-ordination" between what Twitter said about shares and other information from investors and analysts.

Sprenger found that more valuable information was retweeted, meaning that it reached a wider audience.

The study formed the basis of the website TweetTrader.net where the real-time sentiment for individual stocks can be accessed. The site is currently under trial mode.

Previous Study

Earlier in October 2010 a paper by the University of Manchester and Indiana University had stated that there is a possibility to use Twitter for predicting daily moves in the Dow Jones Industrial Average (DJAI). The researchers had stated that a change in emotions expressed online would be followed between two and six days later by a move in the index. The accuracy level, according to the authors, to predict the movement of DJAI was 87.6%.

Derwent Capital Markets, a London-based family-owned hedge fund already offers investors the chance to use Twitter to gauge the mood of the stock market.

It follows tweets and charts the number of times certain words rise above or fall below average. The fund uses a tracker developed by academics from the universities of Indiana and Manchester.

Counter-view

It may be true that twitter can help a person achieve better returns. But as twitter will grow, manipulation in the virtual world will also gain ground. Hence, the shift will be from plain 'information' to 'reliability of information'.

There is also a possibility that this method of investment is more likely to end up as a euphoria. Similar to the years that led up to 2007-08, 'stocks only go up fast'. Or in the early years, till we reached 2000-01, when the internet bubble busted, the common understanding was 'internet stocks can only grow'.

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