Can Twitter social network influences the movement of financial markets? Several researchers are studying this possibility.
Operations with foreign exchange take place in the world’s largest financial market:
Forex (Foreign Exchange), with a number of daily transactions amounting to billions of dollars, according to the Bank for International Settlements. The size of this market can be attributed to the scale and pace of currency trading worldwide trade in constant motion.
And another sector that moves at the same speed is that of social networks. Status updates and the feeling of users that occur in this area arise as a reaction to what happens in the world. As social networks are becoming more ingrained in society, psychologists are beginning to tap the connection between society and finance through the social networking phenomenon. And we live in an interconnected world at large scales, and insulate these connections would be a mistake.
The Universities of Indiana and Manchester are investigating the hypothesis:
If there is a connection between social status updates and financial market movements, it is a hypothesis to study. Johan Bollen, Zeng Xiaojun Huina Mao and have created a report on the relationship between the stock market and the states of Twitter users. The report, which comes from Indiana University in the United States, in conjunction with the University of Manchester, UK, is called “The feeling of Twitter predicts the stock market” and has attracted huge interest.
The status of the users is based on feelings. And a feeling in a very relative concept. It is not something physical or tangible. The feeling refers to conscious thought, a culmination of ideas that suggest a certain tone. This suggests that a study on the feeling of Twitter users about something may be of little relevance.
Instead, researchers have used this report tools that measure the sense of users: the view finder and the profile of Google. The view finder is able to detect if a user feeling about something is positive or negative. Meanwhile, Google profile measures six dimensions of sense: if the user feels safe, helpful, friendly, happy and peaceful life.
Can you predict the movement of the Dow Jones studying ‘tweets’?
Using these tools, researchers set out to analyze the movements in the Dow Jones Industrial Average (DJIA) over 9.7 million tweets. The report notes that movements in the Dow Jones could be predicted with an accuracy of 87.6% between two and six days before the actual move to happen. The prediction is based on the general level of ‘calm’ on Twitter. Interestingly, all the tools, the quiet was the emotion that sets the relationship between finance and society.
The type of prediction model used could be incorporated into prediction models in trade to improve the accuracy of the results. However, this report is still in its infancy and Professor of Computer Science, Johan Bollen said the report “provides no information about the causal mechanisms that may connect the feelings of users with the Dow Jones”.
Undoubtedly, the density of the universe Twitter is a concept really interesting and link this area with financial confidence has great potential. However, the magnitude of the social universe is so broad that state that the opinions of the users have a direct impact on financial movements, is really complex.
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