While stock brokers are constantly looking for the next lead or consumer report to make their investments, perhaps the answer has been readily available to them for some time now. According to a recent Time Magazine article on the 50 innovations and discoveries of 2011, social media has shown a potential to predict stock shifts. In a recent study by Professor Johan Bollen of Indiana University, Twitter comments and collective mood stats where shown to predict market fluctuations three days in advance.
Bollen’s study measured the moods of over 2.7 million tweeters over a ten month span, categorizing each post into one of six different groupings:
Happiness, Kindness, Alertness, Sureness, Vitality and Calmness
The research identified a direct correlation between the level of calmness among twitter users, and the value of the Dow Jones Industrial Average. As levels of recorded calmness would fluctuate with twitter users, the DJIA stock value would have an opposite reaction three days later. The trend was also noticed by Derwent Capital, a $40 million dollarLondonhedge fund, who utilized these predictions to increase their earnings 1.85% this past July. Other researchers like Dr. Eric Gilbert of Georgia Tech, are now looking at social media trends to predict changes in the S&P 500.
As more people use the internet to express their opinions, there is a growing opportunity for companies to interact with their audiences. Through the proper application of social media tools, businesses are now positioned to gain a more meaningful relationship with their followers thus increasing customer satisfaction. Benefits from these lines of communication are available, so long as companies seek to find them.
Socionomics Institute -“New Horizons in the Study of Social Mood”
Times Magazine “Reinventing The Inventor” November 2011