Twitter sentiment trading

From Gekkoquant, I found something interesting. Apparently, some hedge fund established in London is using twitter sentiment to trade the equity markets.

The idea stemmed from the paper Twitter mood predicts stock market, by J. Bollen and co-authors.

They identify market sentiment and then trade the markets with a 3-day lag. It is a tiny market operation yet so I take this cautiously (it is a natural law that humans try to deceive other humans so as to easily take their wealth), but still I regard this issue as interesting.

Quoting Gekkoquant, who also has an interesting series of posts about using the tweeter feed on Python

Interesting interview with Paul Hawtin from Derwent Capital about their twitter fund and some of the implementation details. Key things to note is that they analyse all tweets (no filtering for just FTSE companies), it’s not a blackbox system the mood signals are only single component of their strategy.

Also, here is a video of co-founder Paul Hawtin explaining what they do

I will have a look at the paper and update this post.

Check out the paper also here.

A tale of exponential interest

I have a savings account at ING bank which gives me 4% interest monthly. Each month I receive payment of both the principal I deposited plus the compound interest they gave me over the past months.

Notice that the interest, or the present increment or my balance, $\frac{d x(t)}{dt}$, is equal to the current balance itself times time interest $k$.
$$\frac{d x(t)}{dt} = kx(t)$$
We write each function as a variable for convenience.
$$\frac{d x}{x} = kdt$$
And solve by integration
$$\int \frac{d x}{x} = k \int dt$$
$$\log x = kt + C_0$$
(we abuse notation and name the upper limit of integration with the same name than the integrating variable) yielding
$$x(t) = C_1e^{kt}$$

What does it mean? It means that everybody would see their savings accounts grow exponentially. Now, would it correspond to exponential wealth? Would the currency be debased at the same speed for the interest to be payable or can we extract oil fast enough to cover our land with things and thus effectively increasing our wealth?

$C_1=e^{C_0}$

Here is an interesting discussion at Do the Math.