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How Twitter Is Being Mined to Predict Market-Moving Events


When big data is wielded the right way, the best source for breaking news is 140 characters long.

MINYANVILLE ORIGINAL Last year, the London-based Hedge Fund Derwent Capital Markets bought research conducted by Indiana University computing professor Johan Bollen for close to $40 million. Who said academics wasn't a career to get you rich?

His paper's title alone might explain the corporate interest: "Twitter Mood Predicts the Stock Market" claimed that, by using algorithms to detect mood data in tweets, Bollen could accurately predict changes in the the Dow Jones Industrial Average (INDEXDJX:.DJI) three to four days in advance with close to 88% accuracy.

Big Data can translate into big money for those who are looking at it the right way, and Bollen's research isn't the only Twitter-focused data crawler piquing investor interest.

Dataminr, a New York City-based social media analytics company, just raised $13 million in series B round fundraising this September, adding to the $3.5 million in venture funds it already has. The company's favorable access to Twitter's "full firehose" of ceaselessly flowing data and its unique approach to data analysis and prediction has attracted funds of, among others, GSV Capital (NASDAQ:GSVC), whose past investments include Facebook (NASDAQ:FB), Groupon (NASDAQ:GRPN), and Dropbox.

Dataminr's co-founder and CEO Ted Bailey tells Minyanville that his company's relationship with Twitter is deep on many fronts. "From the CEO through the whole company, they support us on all levels."

A good relationship with Twitter is important.

Keep in mind, the California-based PeopleBrowsr, a company which uses Twitter data to deliver analytics to Fortune 500 companies and government agencies, just took Twitter to court after Twitter began gradually restricting access to its Firehose. PeopleBroswr's business is built around Twitter's original promise to maintain its data as open ecosystem. A judge has awarded a temporary restraining order to PeopleBroswr against Twitter, allowing them continued Firehose access.

How Twitter chooses to restrict its content going forward, and the implications this has on the multitude of companies whose business relies on access to the Firehose is left to be seen. Whether or not this is something Dataminr needs to worry about, it's not necessarily what's driving GSV (a noted backer of high-growth tech companies) to risk $2 million on this 3.5-year-old firm.

It's what Dataminr is doing with its access to Twitter's Firehose, however, that will likely be the payoff.

There's news, and then there's information

On Friday November 30, 10:50 a.m. Major news reports gold futures have dropped 75 basis points on rumors that Fitch is downgrading its ESM rating. Gold futures simultaneously break their critical $1720 support level, in what some see indicating an end to gold's recovery. Moody's subsequently downgrades ESM to Aa1.

It's a significant news point that no hawk-eyed trader would ever miss.

Subscribers to Dataminr knew about the rumor 19 minutes before major news pushed it out.

"Early information is the name of the game and it's in our product everyday," Bailey tells Minyanville. "What we're looking at isn't news. News is an industry that's built around reporters who actually bring their perspective into something, and that's hugely valuable. But it's opinionated and it's different than a 140 character post about what you think or see or what you just heard."

Dataminr says it works in the space that exists prior to news, a space that is even beating major media's 'breaking news' once restricted to rushed telephone calls and abbreviated instant messages. This space is currently filled by Twitter (apparently supplanting Google (NASDAQ:GOOG) which once tracks trends), and Dataminr is using it to give their clients what they call information advantage.

What's the value in knowing Google acquired Incentive Targeting 54 minutes before major news outlets published coverage? Or seeing the Coast Guard has reported an explosion at the Black Elk Oil rig in the Gulf of Mexico 25 minutes before major news reports drove BP (NYSE:BP) -- the newly crowned poster-child for gulf oil catastrophes -- to an intraday low of $39.58, a level not seen since early August?

It's a huge advantage, believes Bailey, whose product serves top banks, $15-billion-plus hedge funds, and equities firms that have made their name on information advantage -- as well a number of government agencies about which he remains tight-lipped.
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