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Twitter can predict stock market movements
Twitter is more than just a platform to air your views on various issues and events. It can also give you a fairly good idea of the stock market movements, says a new study. The latest study by the European Central Bank (ECB) endorses previous findings that said as much.
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The researchers crunched over 3,10,000 tweets between 2010 and 2012 containing the words "bullish" or "bearish" -- as these are generally used in relation to what investors think about future market movements, London-based business paper CityA.M. reported.
They said Twitter could be a better predictive tool for stock market movements than search engine Google, as well as some surveys.
"Twitter bullishness has a statistically and economically significant predictive value in respect of share prices in the United States, the United Kingdom and Canada," the study said.
In other words, what people are saying on Twitter can tell you whether stocks are going up or down that day. The study pointed out though that while Twitter is a pretty good barometer, it only works in the short term.
"We further observe that high Twitter bullishness indicates an increase in daily returns on the following day, with there being a return to normal levels within the next two to five days," the researchers said.
Also, Twitter's predictive powers become noticeable in "extreme market conditions" such as the global financial crisis which ripped through markets around eight years ago.
The ECB admits its a pretty blunt tool to measure such a slippery concept as "investor sentiment" -- the gut feeling people are getting about companies and markets that can move prices. But it turns out that Twitter is a better indicator than flipping a coin.