CorpComms Magazine

Those who follow tweets about the stockmarket could make an average return of 15 per cent, according to a recent academic study.

Timm Sprenger, a PhD student at the Technical University of Munich, revealed that stockmarket-related tweets can accurately predict what will happen within the market a day early.

The research revealed that the more a particular stock is mentioned via tweets, the more likely it is to have a high trade volume on the following day, and vice versa.

Sprenger analysed tweets that mentioned stocks from the S&P 500, an American stockmarket index of the 500 biggest and most traded companies, between 1 January and 30 June 2010. In total, almost 250,000 tweets, less than 0.2 per cent of the total tweets posted on an average day, were studied.

The tweets were then classified in three separate categories - hold, buy or sell. About half recommended holding the stocks, 35 per cent said buy while 15 per cent were sell.

Sprenger found that an investor who made share purchases according to the market sentiment on Twitter would have achieved an average return of up to 15 per cent. But he added: 'I don't think it is the Holy Grail to make millions but it is a very credible and legitimate source.'

He added: 'If a Twitter user often gives good stock recommendations, he will, as a rule, have more followers. Tweets with good recommendations are affirmed and receive greater weight in the overall analysis.'

As a result, the study found that, the better recommendations a Twitter user gets, the more accurate their predictions tend to be.

The tweets often offered advice which appeared contrary to the status of the stockmarket at the time.

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