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Social data is a goldmine for investment managers

Knut Erlend Vik

31 October 2014 


To read the Norwegian article in full, click here.


PA’s financial services expert, Knut Erlend Vik, has had a byline article published in discussing how social networks such as Twitter, Facebook and LinkedIn give us constant and direct access to the thoughts and ideas of millions of people around the world.

Knut Erlend highlights how this open and available data provides very valuable insight for investors and asset managers: “The insurance industry has successfully used social analytics to prevent fraud and improve prediction of risk.

“Saxo Group has recently launched, which allows traders to follow each other's ideas and thoughts. The volume and complexity of the analyses which make use of social data in this way has been limited however to a few companies who have access to the necessary technology and expertise.

“Even less common is the application of behaviour analysis to social data. When this is done precisely, it can be a very effective way in predicting likely consumer behaviour, and therefore, predict demand-driven financial market trends. Bridgewater, the world's largest hedge fund, already uses Twitter feeds to model economic activity – but the rest of the market has not yet followed suit.”

The article goes on to set out how asset managers can identify topics that are related to the relevant criteria for asset allocation within a portfolio. The key is that sentiment – or posture analysis – not only tracks the topics being discussed, or how often they are being discussed, but also attitudes or feelings towards these issues.

The big question is whether consumer attitudes towards an industry or a company will actually mean something for the performance of a company or an investment portfolio. When sentiment analysis is expanded and enhanced to be able to predict behaviour, Knut Erlend says the answer is ‘yes’.

According to the study , “Twitter mood predicts the stock market”,  Twitter sentiment correlates with the ups and downs of the next few days on the Dow Jones Index with 87 percent accuracy.This demonstrates why attitude indicators can be important for predicting short-term market movements.

Knut Erlend concludes by saying: “Managers have a prime source of information compared to conventional investment analysis. Going forward, the use of social intelligence is an integral part of every manager's assessment of global events and consumer trends.”

PA Consulting Group in Norway

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