S&P Dow Jones' Newest Stock Indexes Are Based on Positive Tweets
Two new S&P 500 indexes overweight stocks with high sentiment scores, measured from tweets with cashtags on Twitter.
For all of those advisors who think that Twitter’s role in financial markets is largely limited to the touting of meme stocks, crypto assets, and Elon Musk’s latest musings, consider this: S&P Dow Jones Indices (S&P DJI) has launched two S&P 500 indexes based on positive tweets.
The S&P 500 Twitter Sentiment Index measures the performance of the 200 index constituents with the highest sentiment scores derived from tweets that use stock trading symbols as hashtags — the symbols are preceded with a dollar sign and known as cashtags. The weight of the 200 names is based on market capitalization.
The S&P 500 Twitter Sentiment Select Equal Weight Index measures the equal-weighted performance of the 50 index constituents with the highest sentiment score.
S&P DJI collects the tweets in real time, then screens them to determine an overall “z-score,” which measures the level of positive sentiment for each company. Filters are applied to eliminate spam tweets. The indexes are published daily and rebalanced monthly, at the beginning of each month.
They reflect the growing use of Twitter in announcements and discussions around financial topics. Conversations about finance on Twitter rose more than 26% between 2019 and 2020 in the U.S., according to international Twitter data cited by S&P DJI. Those conversations, notes the S&P DJI press release, “have an increasingly significant impact on markets.”
“Twitter has a highly engaged diverse and growing community of people who come to the platform every day to discuss financial topics,” said Jared Podnos, who leads Strategic Market Development at Twitter, in a statement.
Peter Roffman, global head of Innovation and Strategy at S&P DJI, in a statement, said, “The combination of S&P DJI’s 125 years of indexing experience with Twitter’s large growing social media community dataset will provide a compelling barometer for investors looking to capture market sentiment.”
“The utility is obvious,” Roffman told ThinkAdvisor. “People want to see how stocks that have had the highest sentiment in the last month are doing. Over time, we’ve seen on a risk-adjusted basis that the highest sentiment names historically tended to outperform.”
Eventually S&P hopes to license the indexes for the creation of new investment products, Roffman said.