Is social networking growing up, or should we get ready to “LOL” at the hedge fund industry?
Derwent Capital Markets, a family-owned hedge fund, will offer investors the chance to use Twitter posts to gauge the mood of the stock market.
Bloomberg reports that the Derwent Absolute Return Fund Ltd., set to start trading in February with an initial $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.
Bloomberg notes a paper by the University of Manchester and Indiana University published in October said the number of emotional words on Twitter could be used to predict daily moves in the Dow Jones Industrial Average. A change in emotions expressed online would be followed between two and six days later by a move in the index, the researchers said, and this information let them predict its movements with 87.6% accuracy.