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Hedge fund to track Twitter to gauge stock market, report says

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A British hedge fund said it plans to track Twitter to predict moves in the stock market.

According to a report by Bloomberg, ‘The Derwent Absolute Return Fund Ltd., set to start trading in February with an initial 25 million pounds ($39 million) under management, will follow posts on the social-networking website. A trading model will highlight when the number of times words on Twitter such as ‘calm’ rise above or below average.’

The model is based on a published paper by University of Manchester and Indiana University researchers, which found that they could predict the ebb and flow in the Dow Jones industrial average with about 88% accuracy by looking at emotions expressed online.

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According to Twitter, the website now has 175 million users and sees 95 million posts per day. To the researchers and the hedge fund, those tweets are a wealth of real-time data.

‘The only risk for us is if Twitter falls away and people just don’t use it any more,’ Derwent co-owner Paul Hawtin told Bloomberg. ‘But we believe that it can only get bigger and better, and that more and more people will be using it to express their feelings.’

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-- W.J. Hennigan

Image credit: Twitter

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