Does Finance Twitter Predict Abnormal Stock Returns?

How good is Finance Twitter at predicting market returns? It turns out that a simple measure of bullishness on Twitter helps to explain daily index returns, with a reversal four days later. ECB researchers Huina Mao, Scott Counts, and Johan Bollen find that Twitter, and to a lesser extent Google searches, are useful measures of investor sentiment but not of lasting changes.

“Our finding is consistent with the investor sentiment model where the irrationality of noise traders may cause an asset price to deviate from its fundamental value temporarily and then fall back to the mean,” they write.