Why Twitter Could Become the Top Market Analysis Tool

Get ready for the latest trend in market trend analysis: Twitter. More than just a way for the narcissistic to log the minutia of daily life, the social network Twitter is also a potentially an investment and market analysis tool.

Twitter Trend Analysis

Twitter provides an insight into the minute-by-minute zeitgeist of the internet. Unlike Facebook, which is largely on lock down and slower to respond, Twitter is built around micro-blogging.

Rather than waiting for several hours to process and report on trending topics, Twitter provides insights into gut reactions. Thus, those interested in a market analysis tool for rapid-fire response to emerging trends in the financial markets should look no further than Twitter.

Stock Tweets

Just as there are literally thousands of blogs covering financial markets, so are there tens of thousands of Twitter users whose primary interest is stock tweets.

Twitter users post not only what they’re buying and selling on the stock market, but also links to news articles about trending topics in the world of finance and their own commentary and trend analysis.

While reading tweets will not necessarily tell you a lot about a financial market in and of itself, it certainly offers insights into gut reactions of consumer-level investors, finance gurus and business bloggers.

Twitter Accuracy About Financial Markets

Or are stock tweets a better trend analysis tool than you might think? This is the claim of a recent study coming out of the Technical University of Munich.

Doctoral student Timm Sprenger carefully examined a quarter million stock tweets over a period of six months. While not wanting to overestimate the value of Twitter as a market analysis tool, he did find some striking accuracy about what to buy, when to buy it and when to dump it.

Twitter was right about a surprising number of topics when studied over this six-month period, including which financial trading analysis to listen to and financial spread betting. Anyone still joking about Twitter does so at his own expense.

Twitter and the Marketplace of Ideas

It’s an oft-repeated cliché that the internet brings to fruition a true marketplace of ideas. In the case of stock tweets, however, this seems to be true.

Sprenger’s study found that valuable stock information got passed along (or “retweeted” in the parlance of Twitter) while junk information did not. Retweeted information finds a broader audience, gains critical mass and goes viral. The most valuable information becomes trending topics.

The Limits of Trending Topics

Trending topics are a flag indicating that a topic is hotter than hot on Twitter. Unfortunately for those wishing to use Twitter as a market analysis tool, trending topics apply to all of Twitter, not just stock tweets.

This means you’re more likely to see trending topics about what Lady Gaga is up to this week or interesting (albeit largely rhetorical) questions about ethical behavior and every day annoyances.

Investors looking to use Twitter as a hardcore trend analysis tool must wait for a way to specific look at emerging trends within the world of stock tweets.

Read the Study: Can Twitter be Used to Analyse the Financial Markets?