Investors Slobber Over Cayman Island Hedge Fund That Predicts Stock Market Based on Twitter


It looks like extreme interest from investors over the idea of using Twitter to predict stock-market trends is going to delay the launch of Derwent Absolute Return Fund. Brothers Paul and Simon Hawtin, who run Derwent Capital Markets, a boutique investment firm, had been busy setting the fund up in the Caymans (a popular offshore domicile) to debut April 1, but the pair need more time to change its corporate structure to accommodate more investors. The hedge fund planned on starting with $40 million in assets, but after being bum-rushed with cash from around the globe, the total is closer to $100 million. Among other tactics, the Hawtins’ fund plans to use “sentiment signals” from aggregated Twitter messages “to predict short-term changes in broad stock market indices.” The strategy is based on a paper last year that found “sentiment among Twitter users predicted moves in the Dow Jones index up to six days in advance with 87 percent accuracy.”

Trolling 140 characters for stock tips sounds like the kind of terrifyingly arbitrary methodology that makes you want to trade in your cash for gold. But researchers and investors are actually increasingly using Twitter to analyze sentiment among investors and the public about stock prices. IR Web reports that the social network popular with bored people of the Internet, Ashton Kutcher, and Susan Orlean, has recently been used as a major input into two other new services that look at sentiment on the web. Even traders aren’t always sure what factors are being plugged into the trading algorithms that send Berkshire Hathaway stock prices up when an Anne Hathaway movie debuts. Derwent’s hedge fund is still awaiting approval from the U.K. Financial Services Authority to change their structure. But in the meantime, start tweeting glowing reviews of that Netflix stock you bought that one month you actually made more money than you spent and had extra funds to invest.

Demand for Twitter hedge fund exceeds expectations
[IRE Web]
Related: Mentions of the Name ‘Anne Hathaway’ May Drive Berkshire Hathaway Stock