Quantitative Trading on News and Social Media Content

Transcription

1 1 Princeton - UChicago Quant Trading Conference November 8, Chicago Quantitative Trading on News and Social Media Content Presentation by: Armando Gonzalez President & CEO - RavenPack and thousands more

2 2 Outline About News Analytics in Finance Do people really trade on News Analytics? And Twitter? Opportunities & threats with Twitter in finance Does investing on Twitter actually work? Who breaks news first: Traditional or Social Media? Concluding remarks

3 3 Where are News Analytics used? Quantitative investment and trading receive timely signals or raw data to build custom signals & models across all asset classes and trading frequencies Portfolio management improve asset allocation decisions by benchmarking sentiment towards market, sector, or asset class Automated market making widen spreads, tilt, add/remove liquidity or pull quotes when there is significant news impacting activity in a particular security Execution algorithms create circuit breakers or develop algorithms to help predict liquidity, volatility, and directional movements caused by news Market surveillance & risk management systematically detect events where market abuse may have occurred, mitigate event risk, build early-warning systems Discretionary trading and investing create directional or timing indicators for use in conjunction with technical or fundamental signals Research & analysis help forecast stock, sector, market, and global outlooks

4 Do People Really Trade on News? 4

5 5 Do People Really Trade on Twitter? Still at its very early stages. Most work is done in R&D Labs rather than on the trading floor! Derwent Capital Management - The Twitter Fund Launched with $40 million in July 2011 Closed down in August 2011 after 1 month The Twitter fund was launched based on the (in)famous research paper by Johan Bollen et.al.: Twitter predicts the stock market Calm & Happiness are predictive of the overall market (DJIA) Achieved a correlation of 86.7% with daily returns Critique: no one has been able to reproduce these results

6 6 Twitter Challenges Spot business and economic trends before the rest of the world can Use the +100 million active twitter users as your eyes and ears on world events Position yourself into a trade before the news gains traction to the wider public Instant access to the sentiment of the masses Twitter, Facebook, LinkedIn OK for corporate disclosures, SEC says Twitter introduces an alert system for emergencies and disasters in collaboration with government agencies

7 7 Influential Accounts Most Twitter users have little influence beyond their networks but a few have a real audience For example, Barack Obama has over 36 million followers and ranks # 4 worldwide. Oh right Justin Bieber ranks #1 with over 44 million followers Bill Gates ranks #44 with over 12 million followers Donald Trump (@realdonaldtrump) has over 2.3 million followers, Top 1000 account Carl Icahn has about 75,000 followers, has published less than 20 tweets The top news organization on twitter is CNN with over 13 million followers, ranks #35 The AP only has 45,000 followers and ranks #129,627

8 8 Verifying Accounts On Twitter, a verified account has a blue badge indicating Twitter establishes the authenticity of the identity of the individual or brand Twitter verifies highly sought users in music, acting, fashion, government, politics, religion, journalism, media, advertising, business, and other key interest areas Twitter does not accept verification requests from the general public Linking to your Twitter profile from an official website is the easiest way to confirm the authenticity of your Twitter account Without some form of authenticity check, twitter accounts could be fake, fraudulent, and dangerous

9 9 Text Mining Challenges Twitter tends to have its own language (OMG, LOL, etc.) Hard to distinguish between real events and fictional ones

10 10 Klout Matters No price movement on Apple (APPL) Icahn s comments move APPL stock price

11 11 Klout Matters Carl Icahn discloses large stake in Apple via Twitter 16:00 ET - Market Close Apple ends up 5% 14:24 ET - Dow Jones Newswires Icahn Says on Twitter He Has 'Large' Position In Apple 14:21 ET (Twitter) We currently have a large position in APPLE. We believe the company to be extremely undervalued. Spoke to Tim Cook today. More to come.

12 12 Threats with Twitter and Trading Lots of tweets are garbage scam artists and market manipulators Law enforcement worldwide has issued alerts to media outlets to beware of compromise by hackers For example, the Syrian Electronic Army (SEA) claims responsibility for the takedown of big media sites: NY Times, Washington Post, FT, NPR, and Twitter feeds from Reuters, the AP, and BBC weather service disruption Hactivist groups plan to hijack social media accounts to spread propaganda and misinformation As twitter user accounts gain popularity, the security risk becomes even greater

13 13 Twitter Security Threats: Timeline Father of the Internet Vint Cerf s account hacked (Dec 10, 2008) Twitter domain temporarily hacked by Iranian Cyber Army President Obama Twitter account hacked Australian s Telstra s Twitter account hijacked BP Twitter account hacked, jokes about oil continues spewing from Deepwater Horizon oil well North Korea s official government Twitter account hacked to call for uprising to remove leaders from power

14 14 Twitter Security Threats: Timeline NBC News Twitter hacked Tweets allege another attack on ground zero Lady Gaga s Twitter hacked Promising special Lady Gaga edition Ipads and free Apple Macbooks Don t forget Justin Bieber. Hacker unfollowed 122,000 accounts the singer follows Thai PMs Twitter account hacked False tweets accused her of cronyism and failures Reuters suffers second hack Fake Twitter account posts pro- Syrian government messages Pranksters deface Burger King s Twitter account U.S. Senator Grassley Twitter account hacked Publishing endorsement for the hacker group Anonymous

15 15 Twitter Security Threats: Timeline The Daily Telegraph twitter hack by SEA for eight hours AP Twitter hack causes panic on Wall Street. Dow loses 143 pts in minutes 2013 BBC official weather and Arabic Twitter hacked posting antisemitic and political tweets Fox twitter hacked with fake Obama assassination news The false tweets were retweeted by thousands New York Post s Twitter and Facebook accounts were defaced Syrian Electronic Army hacks domain name servers of two of Twitter s sites

16 Message volume by company - S&P 100 constituents (Jan June 2010) 16 Cumulative Density Distribution (message volume) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Comment: The distribution of message volume is centered around only a few companies. The Top 5 companies account for about 50%. For professional media, it s the Top 40 companies 0% Company count

17 Message volume: intraday seasonality - S&P 100 constituents (Jan June 2010) 17 Comment: The distribution of message volume in Twitter is different from professional media news volume, which centers around the market opening and closing. Sprenger, Timm: Essays on the Information Content of Microblogs and their Use as an Indicator of Real-World Events, 2011

18 18 Distribution of event topics Comment: Message volume has a serious skew towards Technical Trading events, while professional media focus more on Earnings, Insider-trading, and Analyst-Ratings. Operations related events account for a large portion across both sources Sprenger, Timm: Essays on the Information Content of Microblogs and their Use as an Indicator of Real-World Events, 2011

19 Message volume per user (group) - S&P 100 constituents (Jan June 2010) 19 Comment: 1.5% of Twitter users account for more than 50% of total messages. Sprenger, Timm: Essays on the Information Content of Microblogs and their Use as an Indicator of Real-World Events, 2011

20 Who breaks news first: Media or Twitter? 20 Researchers from the Univ. of Edinburgh and Univ. of Glasgow show traditional newswires sources still often break news first They find no evidence that one source leads the other one in breaking news Twitter covers most of the events that are reported by traditional newswire providers However, most breaking news on Twitter is tweeted by traditional newswires sources Specialized news such as macroeconomic indicators, analysts recommendations and estimates are not published on Twitter first available via paid subscriptions

21 21 Conclusions People do trade on news analytics It is providing value to the investment and trading process Extracting value from unstructured text is challenging Extracting value from social media is even more challenging Event trading on Twitter is risky (authenticity/security threats etc.) Trading trending topics seems to be the way to go with social media

22 Equities and Macro Real-time analysis Structured data delivery format Ease of Integration, backtesting & deployment Historical data available Trial available Contact: Armando Gonzalez President & CEO Web: 22 Blog: