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(Audio) Twitter Mood Predicts the Stock Market
Indiana University Researchers Bollen and Mao to discuss their findings at the New Horizons Summit

By Jill Noble
Thu, 24 Mar 2011 16:45:00 ET
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The third in our series of interviews with guest speakers for the 2011 Socionomics Conference, held this April 16th.

I heard about socionomics when I was fresh out of college. The idea that social mood drives economic and cultural trends was fascinating, but was completely at odds with the "conventional economic wisdom" that had been drilled into my head.  At first glance, I didn't think there was enough evidence to support the theory.

Fast forward nearly ten years, and things are changing very rapidly.

Recently I've had the privilege of speaking with Indiana University researchers Johan Bollen and Huina Mao, whose groundbreaking work in computational social science -- "Twitter mood predicts the stock market" -- is under negotiation to be tested in real time (in a $40M hedge fund operated by Derwent Capital Markets).  The academics have received a lot of press for their findings.

 
Neither researcher was aware of socionomic theory when they began their Twitter mood experiment. Bollen and Mao both come from engineering backgrounds; they were eager to obtain quantitative information on public mood, plain and simple. They set out to use their unique data mining tools to test a new technology and analyze social mood: at first they gave no thought to stock market forecasting.
 
They both admit that they were shocked in the course of their research to discover that their mood data seems to predict changes in the market with 87.6 percent accuracy. They realized this challenged the traditional view that the economy affects social mood trends.
 
Matt Lampert, the Socionomics Institute’s research fellow at Cambridge, was not surprised. The week the study published, Matt recognized the importance of Bollen and Mao's work. Socionomics posits that social mood motivates social events (including the markets); Bollen and Mao's work supports that premise.
 
Bollen and Mao's academic openness to the unexpected results of their research has led them to consider socionomic theory as a viable explanation for the correlations between Twitter mood and the stock market. They will discuss their work at the 2011 Socionomics Summit.
 
Listen to their interviews here, wherein Bollen and Mao both discuss their surprise at their experiment's results and the need for more research to determine causality.
  
AUDIO - Bollen                                
 
AUDIO - Mao
 
Or read interview highlights from these two highly visible academics below:
 
 
JMN: What did you originally expect to find from your data collection? Did you initially set out to challenge the Efficient Market Hypothesis and random walk theory?
 
Huina Mao: When we started research, we just tried to… chart the public mood. As you know we are both from informatics. Johan is from psychology. So we didn’t think to try and challenge Efficient Market Hypothesis.
 
Then we find socionomics, we find a bunch of research supporting these findings -- [it] makes us feel very excited to conduct more research in this direction.
 
JMN: Bob Prechter, long ago, noticed that perhaps the Dow Jones Industrial Average and different stock market indicators can possibly indicate our optimism and pessimism primarily because it's such a great record -- such a well-kept data set.
 
Johan Bollen: Well, I mean, the scale of it: the number of investors and the speed at which they make decisions is tremendous. So you really have a good indicator of the public sentiment towards investing right there in the market.
 
The most surprising thing is that it's apparently tied into pretty non-market-related shifts in the public mood -- right? Because we've actually measured public mood states for all tweets. We haven't actually limited that to those submitted by traders or anything like that.
 
JMN: I think that's where we find the information so interesting -- because the socionomic hypothesis puts forward the idea that it's actually aggregate social mood, this sort of patterned collective psychology, that drives a lot of what happens in our… not only in the markets, but in…
 
JB: And we've come to believe that as well -- I couldn't agree more! The research compelled us because all the people thought it would be the news…. But I can definitely say that (Twitter mood) seems to predict the markets, and so that highly suggests some kind of causal mechanism that we don’t understand yet.

 Bollen, Mao, and Prechter will all be on hand at the 2011 Socionomics Summit: New Horizons in the Study of Social Mood on April 16 in Atlanta. If you want to learn about how social mood correlates with stock market fluctuations and more, reserve your seat today!

 **NOTE: The first-ever Socionomics Summit has already taken place. The details for the next summit are still being finalized. To receive an email notification about the next Socionomics Summit and new socionoimcs reports, please sign up now.

 

Robert Prechter and his colleagues at the Socionomics Institute have spent many years fine-tuning socionomic theory and its hypotheses. To understand socionomics fully, please refer to our books, papers and presentation videos, available at www.socionomics.net/conference-resources. The opinions expressed by conference commentators may not precisely reflect those of the Socionomics Institute. In the scientific spirit, we welcome input from contributors of all types, encourage discussion on all aspects of socionomic theory and remain perpetually open to revision. We hope you enjoy these various perspectives.

 

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