Predicting Stocks Via Twitter - Sun Spots and Animal Spirits
I just saw this article about doing sentiment analysis on Twitter in order to predict stocks (and I put these thoughts on TSW first because that’s where I posted the article):
Twitter Can Predict the Stock Market
This was the other idea that Kareem and I were talking about working on before we started working on The Shared Web. We wanted to do sentiment analysis on Twitter, and on the news, and see what people are saying about companies and automatically invest based on that. The idea is that people had nothing else to go by except publicly available information (unless they were trading based on insider knowledge). After all, we are all reading much the same content. What else could fuel the stock market right now, but the preferences of individuals - which in turn are defined by the news, the information that they receive.
I was thinking about this a lot, because in economics after you do a bunch of the math, you usually get an exogenous variable, something outside the basic calculus, that is actually what is determining the outcome state of the system.
In growth economics, that is called ‘technology’ - which is difficult to quantify and explain. In other cases, it’s something else, Jevons called these Sun Spots - unexplained anomaly in economics analogous to the similarly called phenomena in nature. However, Keynes’ term of calling them ‘Animal Spirits’ is more apt.
http://en.wikipedia.org/wiki/Sunspots_(economics)
>If someone tells you you’re in a tech bubble, everyone starts believing things… and it becomes almost a self-fulfilling prophecy. On the other hand, if people say - you’re not in a tech bubble. The converse becomes true. So in many ways, politicians should be encouraged to say that things are always in a good state, because that’s what will move the economy to a good state equilibrium :). Even on TechCrunch yesterday some of the journalists were saying people should stop saying we’re in a TechBubble, because it raises fears http://techcrunch.tv/why-is-this-news/
What this all suggests is that controlling information = controlling the market. But it is actually just a hint towards asking a deeper, far more fundamental question: what is the ‘end’ of the market - i.e. what is it really trying to achieve, as a whole. Is it progress? If so, what does that mean? Does that just mean maximizing GDP? Is it happiness? Because lots of things get included in the GDP that are not conducive to happiness neccessarily, and probably the most important things get left out. So, what really then is the end of the market, what are we moving to, and what are we striving for? Anyways, just some musings. Maybe the Shared Web can be a great place to muse on the interesting content that is being posted.
