Twitter As A Stock Market Prediction Tool

The power of Twitter has now reached the stock markets, as a study by a PhD student in Germany has shown. Timm Sprenger of Munich’s Technical University found that investors following stock market related updates could achieve an average return rate of 15%, after he studied 250,000 tweets over a six-month period.

Every day there are thousands of stock-related tweets sent, with tweeting investors marking them according to company stock symbols. Sprenger found a “striking co-ordination” between what Twitter said about the shares, and other information obtained from investors and analysts.

He also found that more valuable information was retweeted, meaning that it reached a wider audience. The study resulted in the creation of the website TweetTrader.net where the real-time sentiment for individual stocks can be accessed. At the moment the site is still in trial stages.

Mr Sprenger conducted similar research on the federal elections in Germany last year. Using Twitter, he was able to predict the final results for each political party to within 2% of the votes they received. “We got as close as the research institutions that spent hundreds of thousands of pounds,” he said.

Twitter already extrapolates the information that is most-talked about via its Trending Topics feed. Mr Sprenger predicts that it will increasingly offer more specialised versions of the service. Whilst he is confident of the theory behind stock market success using Twitter analysis, he is grounded on the overall potential earnings that it could yield: “I don’t think it is the Holy Grail to make millions but it is a very credible and legitimate source,” he said.