Twitter and microblogging can be an indicator of stock market movements, according to economists at the Technical University of Munich (TUM).
They have developed a website that predicts individual stock trends by using automatic text analysis methods to evaluate thousands of daily tweets.
On www.TweetTrader.net, current forecasts are available for all S and P 500 listed stocks.
The share price of a stock reflects investor and analyst opinions about its prospects and indicates whether positive or negative developments are on the horizon.
The micoblogging platform Twitter has become an important medium for the exchange of such viewpoints.
Thousands of stock-related messages are broadcasted every day via Twitter.
Twittering investors mark tweets according to company stock symbols.
In a study, TUM economists showed that the sentiment from Twitter messages develops similar to the stock market and even leads by a day.
They analyzed 250,000 Twitter messages written in a six-month period and related to S and P 500 listed companies.
The result: If an investor had oriented his share purchases according to the Twitter sentiment in the first half of 2010, he would have achieved an average rate of return of up to 15 percent.
"If a Twitter user often gives good stock recommendations, he will, as a rule, have more followers and will be 'retweeted' (i.e., quoted) more often by other users. Hereby, tweets with good recommendations are affirmed and receive greater weight in the overall analysis," said TUM economist Timm Sprenger.The study was the basis for the development of the website TweetTrader.net where the real-time sentiment for individual stocks can be accessed.