Turning Twitter complaints into stock tips(Read article summary)
WiseWindow offers a service predicting stock market trends based on customer gripes via social media sites like Twitter and Facebook. Does it work?
If there's one guaranteed way to get me to unfollow you, it's to tweet complaints at the airport. As if we all haven't had gruesome flying experiences, as if we haven't already heard all the airline jokes since the era of stand-up comics in front of brick walls in the 1980's. So many spoiled brats...First-World crybabies, surrounded by billions of people without medicine and clean water, whining about the overcooked salisbury steak at the Terminal Cafe.
But one company thinks there might be trading opportunities in all the kvetching. Monetizing the moaning, if you will. They are offering a social media sentiment-reading data feed through Bloomberg for consumer stocks and they're claiming alpha generation with their tool...
WiseWindow provides a service used to predict market trends--in this case stock market trends--based on customer sentiment expressed on social media sites, blogs, and message boards, rather than its more common applications to market research. The initial data feed available through Bloomberg focuses on the airline industry, where WiseWindow's consumer sentiment data has proven to have a high predictive value, the company said. WiseWindow will introduce additional industry-specific data feeds in the coming weeks.
According to an analysis performed by advanced analytics consulting firm Emerald Logic, factoring in WiseWindow data on top of a simple momentum trading program boosted returns by over 30% on an annualized basis for GM, Ford, and Southwest Airlines. For American Airlines, the uplift was 65% annualized. Volatility of returns was also significantly reduced.
I have some thoughts (you knew I would):
1. The AMR example is cute, but is it possible that a tremendous drop in oil prices (always a boon to airline shares) might have been the proximate cause of the rally, the positive social sentiments merely coinciding with that?
2. What happens when WiseWindow moves away from airlines and towards consumer products with shorter purchasing lead times (like fast food hamburgers or apparel)? Will there be enough time to capitalize on a string of positive tweets about the Gap's new fall sweater lineup for stock traders?
3. False negatives could also be an issue, there are consumer brands that are universally bitched about but still in everyday use and generating loads of social media references, like for example, almost every major bank or credit card company. Can we really be sure that persistent pessimism regarding these companies has any real meaning for their share prices considering the fact that consumers have demonstrated a large amount of pain tolerance when dealing with these "products"?
Anyway, it's definitely an interesting merging of social media and markets, I'm open-minded about its utility even if a bit skeptical.