November 18, 2010

Can Twitter Sentiment Analysis Predict the Stock Market

Ugly over at Uglychart.com just posted a link about research that sentiment mined over 10 million tweets from 2008 and was able to predict daily market behavior to an accuracy of 87.6% .  While the post is vastly interesting from a text & sentiment mining perspective using social media, and the application of it to the stock market, I’m not 100% convinced its very viable.

Why? Well I tend to echo some of the comments left by readers at the bottom of the original post.  For example, once this edge” is discovered by general market participants, it tends to get discounted and the edge goes away.  So what we read here today is probably already discounted by the market and is just routine business as usual.”

Now, I certainly don’t mean we should abandon text & sentiment mining for the markets but rather we should continue to use these tools to develop our own secret edges and evolve them as the market changes.  Follow the advice of poker players and underarm deodorant manufacturers,  never show your hand and never let them see you sweat.

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