Seth McGuire on Social Media and the Stock Market

Gnip’s Seth McGuire was on CNBC’s Squawk Box speaking to Andrew Ross Sorkin about social media and how investors can use data from social networks as part of their strategy. Gnip has been providing social data to the financial industry for more than a year, with clients including hedge funds, banks and signal/data providers.  Specifically, Seth spoke to how hedge funds and other traders are using social data as a variable in their algorithms, as well as a research product for deeper analysis of an equity.

Andrew and Seth also talked about how news frequently breaks on Twitter (the famous examples here is the death of Osama Bin Laden). This type of breaking news on StockTwits and Twitter provides a valuable signal that is frequently ahead of mainstream news. (As we’ve blogged before, natural disasters often are reported on Twitter before anywhere else.) Seth also talked about yesterday’s blog post from our data scientist, Scott Hendrickson, on JP Morgan’s $2 billion trading loss and how the news traveled through different social media publishers.

What Gnip has also seen is that while false stories might be shared on Twitter, Twitter is also quick to surpress the stories via crowdsourced response and questions as to the integrity of those false stories.

Squawk Box guest host Doug Dachille posed an interesting question on whether any of the financial regulators have reached out to use Gnip. While Gnip is serving government agencies in areas like disaster relief, right now it’s the actual compliance and data management departments at banks and funds who are more worried about social media. Most firms lock down the ability to post content on social networks, given SEC & FINRA restrictions, but when compliance officers walk the floor they see traders peeking at their iPhones or iPads to see breaking news and analysis on Twitter and StockTwits. From a compliance perspective, that’s dangerous…but they know the data is valuable so they’re seeking news ways (like Gnip) to bring that data in-house for controlled analysis.

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