Data Mining of Facebook & Twitter Shows Effect on Stock Prices

According to Tineka Smith of CBR Online, "New research links public sentiment on social media channels with the valuation of individual stocks. The study by Colt Technology services interviewed over 350 UK financial professionals. Over 60% said that public opinion on social media sites played a role in stock prices. While only 7% said that social media was a leading factor, 45% said it definitely had a role to play. Hedge funds and proprietary trading houses are now able to scan social media data and analyse messages into a range of public mood states. An algorithmic or trading strategy is then used to placed trade orders, giving them an edge over competitors who use traditional forms of data."

Smith goes on, "'In a market where liquidity is highly valued and investors cautious, new sources of competitive advantage will always be welcome,' Hugh Cumberland, Solution Manager at Colt Technology. 'What's important is working out how best to leverage the data mined from millions of social media messages to help trading firms cut through inertia and deliver much needed volume.' However, the research revealed that a third of respondents said the ability to respond fast enough to social media sentiment was a barrier. The volume of data from social media also created challenges for creating successful trading strategies."

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