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Feb 20, 2012

Could Twitter predict the stock market?

Davao Tours B | Feb 20, 2012

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NEW YORK(Reuters) - When Richard Peterson first started meeting with hedge funds about eight years ago to pitch using social media to predict market movement, investment managers looked at him as if he had just arrived from outer space.

Back then, what he was pitching them seemed pretty insane. Peterson, managing director of Santa Monica-based MarketPsych, said that social media can be mined for data about what people are thinking and feeling. And that, in turn, could translate into powerful investment ideas.

"People would say to me, 'You're crazy,'" says Peterson, who did postdoctoral studies in neuroeconomics at Stanford University. "'You're a psychiatrist telling me that funds should analyze social media? Come on.' They didn't think I was serious."

They're taking him seriously now. Usage of social media like Twitter has exploded in recent years, giving analysts a real-time reflection of popular sentiment. As a result, MarketPsych serves up reams of data to hedge funds (which swear Peterson to secrecy) and research firms like Titan Trading Analytics. Peterson even plans to roll out a hedge fund of his own.

"We're champing at the bit to start trading," says Peterson, who says his models work best in times of high volatility. "We've run simulations to see what would have happened by using our data in recent years, and we would've made 30 percent annually."

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