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Using Twitter to Predict The Market

Many expert traders claim to know how to predict whether the market will rise or fall at any particualr time. But there are few, if any, who can actually do it consistently better than simply tossing a coin.

Twitter Stock Market TimingFor many economists that’s easy to explain. Conventional economic theory (ie, Efficient Market Theory) holds that the movement of prices in a perfect market should follow a random walk and should be impossible to predict with an accuracy greater than 50 per cent.

But the efficient market hypothesis no longer holds water because numerous studies have shown that stock market prices are not entirely random and may very well be tied to mass psychology and related factors.  If so there may be a way to gauge the mass consciousness for predictive signs.

Researchers at Indiana University say they’ve found just such a predictor buried in the seemingly endless chatter that emanates from the Twitterverse. (Study results posted at bottom)

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