Topsy Labs to Use Tweets as Stock Market Predictors

Topsy Labs Inc. has announced a new investment tool based on Twitter. That’s right, the company will use Tweets to signal upcoming market trends. The company points to last year’s Netflix (NASDAQ:NFLX) bomb as an example of why it might work. Topsy Labs says that it saw an influx of negative Tweets regarding Netflix’s decision to split its DVD and streaming services last September, which indeed translated into a stock market tumble for the company in the following months. Topsy plans to compile Twitter data and disseminate it to investors to help them foresee upcoming trends.

BusinessWeek quoted Rishab Ghosh, co- founder and vice president of research at Topsy, who said, “Information dissemination is now largely not through publication, but through conversation. We’ve actually been able to show that you can take that data, put it through processing, and relate it to the market return for a specific stock.” Topsy isn’t the first to have this idea. The company joins WiseWindow and Derwent Capital Markets in using “sentiment analysis,” the practice of examining posts from Twitter, Facebook, and other social media sites to predict changes in the stock market, new trends, and even the success or failure of a new product.

BusinessWeek cited Erin Collar, an advistor to Topsy and a portfolio manager at Armored Wolf, who said, “It is data and news generated from the ground level. It’s real time, and it’s way more predictive, and way ahead of the curve before it even reaches mainstream media.” While Topsy will have complete access to all Tweets both present and past, the company will not include data from any other social media sites. Some analysts see that as being a disadvantage for the company. Still, the idea of sentiment analysis is an interesting concept and may have even further reaching applications, say the upcoming election for example.