Twitter analysis predicts stock prices a day ahead

Posted by Kate Taylor

Playing the stock market just got a little easier, thanks to economists at the Technical University of Munich (TUM) who have developed a website that predicts individual stock trends.

Thousands of stock-related messages are broadcasted by investors and analysts every day via Twitter, using the standard company stock symbols.

The team behind the TweetTrader site uses automatic text analysis methods to evaluate thousands of daily tweets, giving current forecasts for all S&P 500 listed stocks.

The TUM economists showed that the sentiment from Twitter messages shows similar patterns to the stock market - but tends to lead by a day.

After analyzing 250,000 Twitter messages written in a six-month period and relating to S&P 500 listed companies, they found that if an investor had oriented his share purchases according to the Twitter sentiment in the first half of 2010, he would have achieved an average rate of return of up to 15 percent.

"If a Twitter user often gives good stock recommendations, he will, as a rule, have more followers and will be 'retweeted' more often by other users, says TUM economist Timm Sprenger.

"Hereby, tweets with good recommendations are affirmed and receive greater weight in the overall analysis."

You can have a little flutter, here.