My slides for paper "Twitter Volume Spikes: Analysis andApplication in Stock Trading".

1. Twitter Volume Spikes: Analysis and
Application in Stock Trading
Yuexin Mao, Wei Wei, Bing Wang
Founder & CEO
FinStats.com
University of Connecticut

2. Motivation
• Challenge Efficient Market Hypothesis
• Stock related tweets can lead to market insight
– S&P 500 stocks mentioned more than 11,000
times daily on Twitter
• Goal
– Demonstrate potentials of analyzing stock related
Twitter data

3. Overview
• Twitter volume of S&P 500 stocks
• Twitter volume has spikes
• interest in stock fluctuates
• When?
• Surprise?
• Causes?
• Trading Signals?

4. Twitter Volume Spikes: Definition
• Twitter volume of a stock
– # of times stock ticker mentioned in tweets (e.g., #
of times $AAPL mentioned)
• Twitter volume spike
– Daily volume is over K times average of previous
70 days
• K=2, 3, 4

5. Twitter Volume Spikes: When?
46.4% of spikes within one day of earnings day

6. Twitter Volume Spikes: Surprises?
• Implied volatility of short
term options
• increases dramatically
before twitter volume
spikes
• collapses afterwards
• Options more expensive
when market events are
expected
• Twitter volume spikes not
unexpected

7. Twitter Volume Spikes: Causes?
Median Correlation Coefficient
• Earnings day 0.37
• Implied volatility 0.14
Correlation with
Twitter volume
spikes
• Earnings day
• Implied volatility
• Interday price change
• Intraday price change
• Breakout

8. Twitter Volume Spikes: Trading Signals?
• Strategy: Bottom picking using twitter volume spikes
– Price retreated at least λ% from recent high
• Classification
– success: price higher at 10-th day after Twitter volume spike
– failure: otherwise
• Features
– Interday price change rate/average of last 70 days
– Intraday price change rate/average of last 70 days
– Breakout: price higher/low than previous 70 days
– Earnings day: earning report within one day
• Bayes Classifier (Naïve Bayes: independent features)
– Trading signal: success probability above 0.7
– Training set: 2/21/2012 – 10/19/2012
– Test set: 10/22/2012 – 3/28/2013

9. Twitter Volume Spikes: Trading Signals?
• 14/17 winning trades
• Average 15% gain
• Best trade: 93%
• Worst trade: -11%

10. Trading Signals: An Example

11. Future Work
• More robust Twitter spike metrics
– Total number of followers
• Options market and Twitter
• Fundamental Analysis
• Technical Analysis
• More research results at FinStats.com
– Put selling strategy
– Picks and performance
• > 92% winning trades
• Every 1 dollar of premium received, 74c kept