Even experienced traders talk about the difficulty of predicting the stock market. But new research suggests there’s a useful device out there to guess the market’s mood: Twitter. With thousands of investors exchanging tweets every day, the micro-blogging site is like an earphone plugged into the very conversations and rumours that move the markets. For investors who tune in, the rewards are substantial, according to Timm Sprenger, a doctoral student at the Technical University of Munich.
After tracking 250,000 tweets a day for six months, he showed that buying and selling shares based on following market-related tweets can reap an average rate of return of 15 per cent. Sprenger, who offers his services on TweetTrader.net, used tweets to extract sentiment rankings that he says predicted movements on Standard & Poor’s 500-stock index a day ahead of time. But some warn that Twitter can be manipulated to promote or discredit stocks. Eavesdroppers beware.