Hedge funds use Twitter

Trader London - Arabstoday Millions of messages about trivial matters are posted on Twitter every day, but one group of hedge fund managers are using them as a crystal ball for market fluctuations - and it's having a big impact. Analysts at London’s Derwent Capital Markets - described as 'Europe's first social media-based hedge fund' - has launched a £25million fund based on research that suggests tweets foretell whether markets will go up or down. It shows that if the mood of the population goes up, the market follows. The Mayfair company use a program that scans Twitter for keywords to work out what the world's 'mood' is - and invest money accordingly. And so far the results have been positive 'Derwent Capital has reported a 1.8 per cent rise in their first month of trading when the U.S. main index has dropped by 2.2 per cent,' said Duane Jackson, who launched KashFlow, which is Britain’s best-selling cloud-based accountancy package, six years ago. The Twitter-analysis program was written by Johan Bollen, professor of informatics and computing at Indiana University and he used it to predict market movements at the Dow Jones in New York with 87.6 per cent accuracy last October. It works by first sweeping a swathe of random tweets for positive and negative comments and then processing them with a Google-designed program that works out if the tweeters were in one of six moods: calm, alert, sure, vital, kind or happy. Mr Bollen explained how his software can give fund managers the edge: ‘We recorded the sentiment of the online community, but we couldn't prove if it was correct. So we looked at the Dow Jones to see if there was a correlation. We believed that if the markets fell, then the mood of people on Twitter would fall. ‘But we realised it was the other way round - that a drop in the mood or sentiment of the online community would precede a fall in the market.' Paul Hawtin, Derwent's founder and fund manager, said: ‘Investors have always accepted that markets are driven by sentiment, mainly fear and greed. When people are greedy the markets go up and when they are fearful they go down. ‘When sentiment dropped, and people tweeted about feeling tight on money, were worried or anxious, the markets would crash two or three days later.’ It looks, then, like Derwent could be on to a good thing, but computers aren't always reliable - as per biologist Paul Ehrlich's quote, 'To err is human - but to really foul things up requires a computer.' Earlier this year director and writer Dan Mirvish noticed that whenever actress Anne Hathaway was in the news, stocks in Warren Buffett’s company Berkshire Hathaway rose sharply. Mr Mirvish believes it’s because robotic trading programmes are registering mentions of ‘Hathaway’ and wrongly assuming it’s for Berkshire Hathaway. Is it any coincidence that shares in Berkshire jumped 2.02 per cent the week before Anne Hathaway was due to host the Oscars this year? Mirvish cites six other examples of similar spikes, including for when Anne Hathaway movies Rachel Getting Married, Bride Wars and Alice in Wonderland premiered.