Hedge Fund Taps Twitter For Market Mood

Derwent Capital Markets, a London-based hedge fund, plans to track Twitter activity to judge the mood of the stock market.
By Theresa McCabe ,

NEW YORK (

TheStreet

) -- Derwent Capital Markets, a London-based hedge fund, plans to track Twitter activity to judge the mood of the stock market.

Recent research suggests that Twitter can be used to predict movements in the stock market as key words can indicate the overall emotion within the economy.

In October, the University of Manchester and Indiana University published a paper that focused on tracking the level of emotional words used on Twitter.

The researchers said that a change in emotions expressed on the social media site would result in corresponding movements in the Dow Jones Industrial Average between two and six days later. They were able to predict movements in the index with 87.6% accuracy.

Derwent Capital has partnered with Dr. Xiao-Jun Zeng of the University of Manchester, an author of the research paper, to use social media as an investing tool.

Derwent owner Paul Hawtin is confident that his hedge fund will be a success.

"The only risk for us is if Twitter falls away and people just don't use it any more," Hawtin told

Bloomberg

in an interview. "But we believe that it can only get bigger and better, and that more and more people will be using it to express their feelings."

The Derwent Absolute Return Fund plans to begin trading in February with an initial 25 million pounds, approximately $39 million, under management.

The firm is active on Twitter under the handle

@DerwentCapital

.

-- Written by Theresa McCabe in Boston.

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