MotivationQuantify information gathering behavior thatprecedes investment decisions.
● Stock prices follow news.● News cant be predicted ⇒ Random walk.● However: Stocks do not follow random walk.● What about bubbles?● More and more research casting doubt...Efficient Market Hypothesis
Quantitative Behavioral Finance● Online chat activity predicts books sales ● Blog sentiment analysis predicts movie sales.● Google search queries predict diseaseinfection and consumer spending .● ⇒ News impact markets, but so does publicmood and sentiment.
Simple investment strategy basedon Google search volumefor t in [1:T]:avg_search_vol = mean(search_vol[t-2:t-5])if search_vol[t-1] > avg_search_vol:short DJIA for one weekif search_vol[t-1] < avg_search_vol:long DJIA for one week
Image sources and references● http://www.ng.all.biz/img/ng/service_catalog/502.jpeg● http://www.123rf.com/photo_10037927_businessman-or-stock-broker-with-cellphone.html● http://www.financetwitter.com/wp-content/uploads/2011/08/SP500_Crash_4Aug2011.jpg● http://lydiakimblesellsvegas.com/images/buy-sell-keyboard.jpg● http://venturebeat.com/2012/05/28/twitter-fueled-hedge-fund-bit-the-dust-but-it-actually-worked/● Gilbert, E & Karahalios, K. (2010) Widespread worry and the stock market.●  Gruhl, D, Guha, R, Kumar, R, Novak, J, & Tomkins, A. (2005) The predictive power of onlinechatter. (ACM, New York, NY, USA), pp. 78–87.● Mishne, G & Glance, N. (2006) Predicting Movie Sales from Blogger Sentiment. AAAI 2006Spring Symposium on Computational Approaches to Analysing Weblogs● S. Asur and B. A. Huberman 2010 Predicting the Future with Social Media arXiv:1003.5699v1● Choi, H & Varian, H. (2009) Predicting the present with google trends., (Google), Technicalreport.● Liu, Y, Huang, X, An, A, & Yu, X. (2007) ARSA: a sentiment-aware model for predicting salesperformance using blogs. (ACM, New York, NY, USA), pp. 607–614.