Video: UK hedge fund uses Twitter to monitor market movements

A UK hedge fund that will make buying decisions based on the 140 character conversations of Twitter is set to be launched next month

A UK hedge fund that will make buying decisions based on the 140 character conversations of Twitter is set to be launched next month.

Derwent Capital has based its plan on the findings of Indiana University's Johan Bollen, who has conducted research suggesting monitoring what is being discussed on Twitter could predict movements in the market with a high degree of accuracy.

According to CNBC, the research found Twitter was 87% accurate in predicting how the Dow Jones Industrial Average would move on any given day, up to four days before it actually happened.

Paul Hawtin, who set up Derwent Capital, told CNBC why the idea became a business - see video:

 

But, Dr John Bates, CTO of Progress Software, who provides market surveillance technologies to financial institutions such as the Financial Services Authority (FSA), is sceptical: "Predicting stock market moves via Twitter is highly unlikely. If an event such as a war or financial crisis occurs in real-time, information in 140 characters is not going to help organisations make real-time business decisions.

"Any information source that can track human emotion requires real-time surveillance technology to monitor exactly how the public mood induces changes in financial markets. For example, unusual peaks several days after as a misinformed tweet could lead to market manipulation or trading errors."

Back in 2009 trading software maker Streambase introduced software that enables trading firms to link complex event processing (CEP) software to Twitter.

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