There has been a lot of buzz about the use of social media to inform trading and investment decisions in recent years, with some claiming that, if properly harnessed, big data from social media platforms could prove to be some kind of crystal ball for the markets.
Certainly, this was the thinking behind the ‘Absolute Return Fund’ – a $40.5 million hedge fund based solely on a strategy of using social media data to inform trades. The fund, which was started in late 2010 by London-based investment firm Derwent Capital Markets, based its investments on an analysis of 10% of the 10 million tweets that were then being sent on a daily basis on Twitter.
Using trading algorithms and sentiment analysis techniques to mine tradable data from the Twitter firehose, the fund returned an impressive 1.86% in its first month of trading, a result that beat both the market and the average hedge fund. Then, it abruptly shut down, citing a near-total lack of investor interest in what was then an innovative approach to trading.
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