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Karahalios Finds Blogs Can Predict Future

6/21/2010 9:18:00 AM

New Scientist magazine featured research by Illinois computer science professor Karrie Karahalios and CS PhD student Eric Gilbert on whether blog posts can be used to predict future stock market performance. Their findings: it can.

From the article:

Blog posts can be used to predict stock market behaviour, according to Eric Gilbert and Karrie Karahalios at the University of Illinois at Urbana-Champaign, who presented their findings last month, at the International Conference on Weblogs and Social Media in Washington DC.

They used over 20 million posts from the LiveJournal website to create an index of the US national mood, which they called the Anxiety Index. It is a measure of the frequency with which a range of words related to apprehension, such as "nervous", appear in the posts. Gilbert and Karahalios described how they have used the index to improve forecasts of the movement of the S&P 500, a stock market index based on large, public US companies.

Movement of the S&P 500 can be predicted with some degree of accuracy using a model that extrapolates from the past three days' prices. Gilbert and Karahalios found that when the Anxiety Index rose sharply, the S&P 500 ended the day marginally lower than the three-day model predicted. This shows, the researchers say, that the index can be a useful bellwether of economic behaviour. "Blogs provide a sample of what is going on in society," says Gilbert.

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