May 18, 2011

First Social Media-based Hedge Fund Opens Doors

Derwent Capital Markets, a London investment firm that has long been touting itself as the first social media-based hedge fund, has opened its doors.

  • The £25 milllion ($40.5 milion) hedge fund is basing investments on an analysis of 10% of the 10 million tweets sent daily.
  • The firm applies trading algorithms and sentiment analysis to those tweets before making its bets.

The concept of using social media as stock market predictor

  • Derwent is the first boutique investment firm to take this approach but not the first one to use this concept
  • StockTwits, a third-party Twitter app, provides a forum to discuss investment-related matters.
  • Chart.ly and Covestor are among others.
  • Students at Cornell  also authored a paper, which found that monitoring sentiment in tweets yielded was 87.8% accurate in predicting the “daily up and down changes in the closing values” of the Dow Jones Industrial Average.
  • A fund starting up in Japan will base its investments on sentiment found by analyzing blogs.

 

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