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

December 22, 2010 | 10:00 am

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." Tweet

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.

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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