Can Twitter Be Used to Predict the Stock Market? These Guys Think So

Twitter is people! At least some Cornell University folks seem to think it’s a window into people's minds. A recent paper published over at arXiv.org writes a compelling case for Twitter's ability to be used to predict certain things--specifically stock market behavior.

It all stems from the documented belief that the ebb and flow of the stock market is driven by decision making instead of reaction to news. They attempted to prove this by studying 10 months' worth of tweets from almost 3 million users, which is around 10 million tweets. Non-study related tweets like spam were dropped, as the researchers focused on tweets about feelings.

In order to find those particular tweets, Cornell researchers fed the data into two different filters: Opinion Finder and Google’s Profile of Mood States. Both filters process mood determination and were used to that effect for the purpose of the paper.

The most interesting part of the paper is the fact that it appeared to work; to quote the arXiv.org’s summary page, "We find an accuracy of 87.6% in predicting the daily up and down changes in the closing values of the DJIA and a reduction of the Mean Average Percentage Error by more than 6%." That's a rather high percentage of prediction accuracy when you think about how it’s sourced from a 150 character social device like Twitter.

Justin Bieber and the current (at the time of this writing) Superbad trend aside, I’ve always thought of Twitter as an amazing resource for social and news aggregation. It’s hard to beat an instant update of events and happenings across the globe, and the sheer power of the service and what it’s done for world news can’t be stressed enough.

You only have to remember back to the fairly recent elections in Iran where a media blackout was pierced by Twitter feeds to see how world-changing it is. The US Government actually asked Twitter to not run a planned upgrade (with included downtime) in order to keep the flow of information coming from Iran. It was an amazing thing to see and an amazing tool for activists and discontents of government. Anyone with an internet connection has easy access to Twitter and no central authority has any control over it.

Of course from a casual-use perspective, Twitter brings a lot to the table too. It’s one of the best news aggregates available on the internet. In the same place you can see the opinions of unlimited like-minded people, professional or otherwise, to that same news. With twitter’s exponential growth still happening, it’ll only get better.

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