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AIM Students Worked With Social Media This Semester - It Continues to Grow in Importance
- Bloomberg.com – Andrew Lo Study Says Twitter Can Help You Trade Fed Meetings
It looked at sentiment `polarity’ in days before the FOMC met
Researchers found a predictable enhancement of returns
In the social media cacophony, some of the noise rises to the level of stock market signal. That’s the finding of a working paper overseen by Massachusetts Institute of Technology’s Andrew Lo, which says a trading strategy based on views posted on Twitter prior to Federal Reserve policy meetings regularly turned a profit. A one-standard-deviation increase in tweet sentiment can be exploited to boost Fed-day equity returns by 0.62 percent, it found. Quant investors have been obsessed for years with pulling signals out of social media, where roughly 1.8 billion active users opine in real time on everything from tech valuations to celebrity breakups. The MIT study, which examined 3.9 million tweets over seven years, joins an expanding pool of research examining topics such as the role of tweets in market volatility and the accuracy of crowd-sourced earnings estimates.