Tapping
into the herd through social media has been a goal for investors for some
time.  Collective Intellect (founded in
2005 for this sole purpose) and Dow Jones Insights are listening platforms that
specialize in this area.  Late last year Stocktwits became the first Twitter based service based on investment discussion and has been driving
change in the way that many day traders discuss and evaluate stocks.   But if there was any question about social media having a measurable impact on
trading, that has been quashed with the latest announcement that StreamBase
Systems is integrating Twitter with its Complex Event Processing (CEP) platform
for money managers and traders.

“Users of StreamBase’s Twitter adapter can combine Twitter with market data and
build data management applications, says StreamBase CTO Richard Tibbetts. In
particular, Twitter can be used as a crowd sourcing tool to help gauge people’s
sentiment towards a particular event or stock. “It’s really useful for
sentiment analysis, which traders can then use to help them make trading
decisions,” he adds. Nasir Zubairi, former product manager for algorithmic
trading and FX E-commerce, RBS, points out that as Twitter continues to gain sweeping
adoption across the globe, it will increasingly become a key medium to convey
information to the financial world too.”

Now
the question becomes: What impact will this have on stock values? 

Will
more information make the markets more efficient? The lightening speed of
information transfer on Twitter will allow traders to price in news more
quickly.  Case in point, both Michael
Jackson’s passing and civil unrest in Iran were all over Twitter before there
was any news coverage that would appear in a trader’s feed from Bloomberg or
Reuters. 

Or
will misinformation and group think lead to more volatility?  If traders act on the earliest rumors the
impact on market value of stocks becomes self reinforcing and may amplify the
natural tendency of the market to bubble and bust.

Regardless
of the answer, it is guaranteed that day traders not plugged into social media
will be at a disadvantage.

Thanks to Fang-Lu Lin
for the link.

Russ Hopkinson