Sooner or later, it had to happen. . . . Tweets have been linked to stock market behavior. This was not a case of inside information. Researchers from Indiana University have demonstrated
that public mood, as expressed in millions of Tweets, can predict stock market behavior with fair reliability .
Analyzing a collection of 9.8 million Tweets from 2.7 million users in 2008, the team used a "subjectivity analysis" tool called OpinionFinder and a Profile of Mood States (a psychological measure) to create a time series that tracked daily variation in public mood as exhibited by the language of the Tweets. It then compared the fluctuations in mood with those of the closing values of the Dow Jones index.
To make these comparisons, the team trained a neural network on the data. Of course, this was not just any neural network. It was a Self-Organizing Fuzzy Neural Network, one in which organizes its own"neurons" during the training process.
The patterns that this neural network identified revealed that Tweeting terms that convey a sense of calmness anticipated upward movement in the stock market. These predictions were 87.6 percent accurate. Although I have been unable to to track down the statistical analysis methods behind the mood measures, these odds would seem to be impressive.
Does the relation between Tweeting and the stock market work only one way? Or does this result imply that if we want to avoid another Black Swan dive in the financial markets, we should just think calm thoughts and Twitter slowly?