How does crowd psychology affect financial returns? That is a question economists have been pondering ever since traders first huddled in physical trading pits, dealing floors or around computer screens. And this week the issue has become doubly relevant, given how markets in gold – or even Bitcoins – have gyrated.
But now some data scientists are jumping into the fray as well. Two academics at the MIT media lab in Boston – Sandy Pentland and Yaniv Altshuler – have been crunching vast quantities of computer data to track what happens to investors plugged into social media, such as Twitter.
This marks a curious new frontier for investment research; though economists have always been able to track market returns, the advent of social media – and big data – means researchers can now track investment returns alongside information flows, with growing precision.