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Twitter Can Predict the Stock Market Six Days In Advance

Illustration for article titled Twitter Can Predict the Stock Market Six Days In Advance

The secret of the bull and the bear are in the bird and the whale: Twitter can be used to predict the stock market behavior with an accuracy of 87.6%. In other words: Justin Bieber controls the world's economy.

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This is the paper summary by Indiana University's research team Johan Bollen, Huina Mao, and Xiao-Jun Zeng's:

Behavioral economics tells us that emotions can profoundly affect individual behavior and decision-making. Does this also apply to societies at large, i.e., can societies experience mood states that affect their collective decision making? By extension is the public mood correlated or even predictive of economic indicators? Here we investigate whether measurements of collective mood states derived from large-scale Twitter feeds are correlated to the value of the Dow Jones Industrial Average (DJIA) over time. We analyze the text content of daily Twitter feeds by two mood tracking tools, namely OpinionFinder that measures positive vs. negative mood and Google-Profile of Mood States (GPOMS) that measures mood in terms of 6 dimensions (Calm, Alert, Sure, Vital, Kind, and Happy).

We cross-validate the resulting mood time series by comparing their ability to detect the public's response to the presidential election and Thanksgiving day in 2008. A Granger causality analysis and a Self-Organizing Fuzzy Neural Network are then used to investigate the hypothesis that public mood states, as measured by the OpinionFinder and GPOMS mood time series, are predictive of changes in DJIA closing values.

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Illustration for article titled Twitter Can Predict the Stock Market Six Days In Advance

Our results indicate that the accuracy of DJIA predictions can be significantly improved by the inclusion of specific public mood dimensions but not others. 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%.

So people, please keep your tweets happy. [arxiv via Technology Review]
Cartoon by Kevin Kallaugher for the Baltimore Sun

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DISCUSSION

FTA:

"But there are at least two good reasons to suspect that this result may not be all it seems. The first is the lack of plausible mechanism: how could the Twitter mood measured by the calmness index actually affect the Dow Jones Industrial Average up to six days later? Nobody knows.

The second is that the Twitter feeds Bollen and co used were not just from the US but from around the globe. Although it's probably a fair assumption that a good proportion of these tweeters were based in the US in 2008, there's no way of knowing what proportion. By this reckoning, tweeters in Timbuktu somehow help predict the Dow Jones Industrial Average."

IOW:

It's probably a red herring.