As we more or less know, the sheer randomness of the world makes predicting stockmarket movements not so much a fool's game as Russian Roulette. If you believe you can outwit the markets on a day to day basis it's only a matter of time before the hammer falls on a firing cap.
Despite this people keep trying, because it's a basic human urge to try to make sense out of the nonsensical. The ancient Chinese believed a solar eclipse was caused by a celestial dragon munching up the Sun. At the time that counted as advanced thinking: indeed it still does in some parts of the world, but generally it's a lot hard these days to believe that people think stockmarket movements can be predicted by the random and trivial ramblings of posters on Twitter.
Can't be right, can it?
Moody Twits Drive the Markets
In Twitter Mood Predicts The Stock Market the researchers find that Twitter mood is 87.6% successful in predicting the daily movements of the Dow Jones Industrial. The researchers suggest that this is an outcome of behavioral finance: the idea being that "financial decisions are driven by emotion and mood".
Which is true, to some extent, but it rather beggars belief that almost 90% of daily stockmarket movements are attributable to this, even more so that the world's stockmarket movers intersperse their frantic trading to bother explaining how they're feeling. Far be it from this less than august journal to argue in favour of the Efficient Markets Hypothesis, but most stock market movements aren't that irrational most of the time.
The study employs lots of whizzy technology including a "Self-Organizing Fuzzy Neural Network" which sounds like a handy gizmo to have around the office, but is basically a program that has learned to make predictions based on past data – in this case either the last three days of market movements or the same data with various bits of mood related data cleverly extracted from Twitter.
Bangladeshi Butter
To be honest it's a stunning result but its very accuracy raises questions about whether it's actually measuring some real correlation with stockmarkets or whether it's simply a repeat of the case of the Bangladeshi Butter. Because, oddly enough, Bangladeshi butter production figures have also been shown to be a darn fine predictor of stockmarket movements.
