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Alternative Market Briefing

Derwent Capital's 'Twitter fund' sees negative sentiment and expects downturn

Monday, July 25, 2011

amb
Paul Hawtin
From Kirsten Bischoff, Opalesque New York:

This year, one of the launching funds that received its fair share of attention was a fund often referred to as "the Twitter fund". Launched by London-based Derwent Capital, the first sentiment-based hedge fund started official operations on July 1st and was inspired by an academic paper titled Twitter Mood Predicts the Stock Market" , by Professor John Bollen of Indiana University and two co-authors (Huina Mao and Xiao-Jun Zeng).

What the paper found was that the change in sentiment on Twitter was three days ahead of [movement] of the Dow Jones, explained Derwent Capital’s Founder and Fund Manager Paul Hawtin during a recent interview with Matthias Knab on Opalesque TV. "It was an amazing discovery and even to this day we still do not fully understand the correlation between [Twitter and the Dow] and why we see that correlation but we are starting to understand it in a bit more detail," Hawtin says.

With six months trial behind them, the accuracy with which the firm has been able to predict the daily direction of the Dow has been 80%-90%, and those results were what drove the firm to launch the Derwent Absolute Return Fund.

Hawtin, whose background is in quantitative trading, explains that th......................

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