Hedge Fund to Use Twitter for Trading Model

Back in October, Indiana University researchers determined that they could predict fluctuations in the Dow Jones Industrial Average with roughly 88 percent accuracy by looking at emotions expressed on popular nanoblogging site Twitter. Now, according to Bloomberg, a hedge fund called Derwent Capital Markets is putting actual money behind what we’ll call Twitter Emotion Dow Theory.

The Derwent Absolute Return Fund, which has about $39 million under management, will model its trading on levels of anxiety expressed on Twitter, as measured by use of certain words. Derwent’s swanky website calls the firm a “family owned and managed investment boutique providing investment advice in relation to cfd’s.” It’s not surprising that the company is also on Twitter. Here’s its handle.

We can’t help but wonder if there isn’t some way to manipulate this, perhaps by registering a whole bunch of Twitter bots designed to tweet certain words and make the Derwent machine go insane. Time will tell!

mtaylor [at] observer.com | @mbrookstaylor Hedge Fund to Use Twitter for Trading Model