Twitter Predicts the DJIA

Social Media is changing how people interact basically every day.  From Facebook to Pinterest to Youtube, people are ingesting social media more than anyone could have originally imagined.  On the horizon, a number of respectable scientific organizations are using data gleaned from these social media platforms to do everything from predict consumer behavior to predicting economic performance.  In behavioral economics, the most basic premise is that markets aren’t rational sytems, rather expressions of human emotions including greed and fear. Seemingly scientists at the Indiana University have set out to prove that Twitter has become an excellent predictor of behavioral economics.

Professors Johan Bollen and Huina Mao of Indiana University, and Xiao-Jun Zeng of the University of Manchester recently wrote a study with findings that gauge “collective mood states” of the investing public and can correlate those changes in mood states to the Dow Jones Industrial Average.  In the study, they found statically significant correlations that could predict a market shift nearly 3 days in advance with more than 85% accuracy.  Hedge fund and investment managers have taken notice!

What would you do if you knew what the Stock Market is going do before it does it?