Can Real-Time Search Help Hedge Funds?

June 25, 2009
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I haven’t exactly been generous in my opinions about the widespread obsession with “real-time” search. But in today’s Telegraph there’s at least a story that makes sense in theory: “Hedge fund managers betting Twitter will give them an edge in rapid trading“.

In practice, I’m pretty skeptical, as is Gwen Robinson at the Financial Times Alphaville blog. She writes:

That’s very interesting, because several hedge fund managers we spoke to dismissed the idea variously as “all twatter” and “rubbish” – not least because Twitter has carved a reputation more for unfounded speculation and even sensational disinformation than for ground-breaking, market-moving alerts for alpha-hungry fund managers.

I’ll concede that time really is money for for hedge funds and other traders who need to make decisions before the rest of the market catches up. But I’m dubious that Twitter – let alone an automated processing of tweets – will enable traders to make better decisions…

I haven’t exactly been generous in my opinions about the widespread obsession with “real-time” search. But in today’s Telegraph there’s at least a story that makes sense in theory: “Hedge fund managers betting Twitter will give them an edge in rapid trading“.

In practice, I’m pretty skeptical, as is Gwen Robinson at the Financial Times Alphaville blog. She writes:

That’s very interesting, because several hedge fund managers we spoke to dismissed the idea variously as “all twatter” and “rubbish” – not least because Twitter has carved a reputation more for unfounded speculation and even sensational disinformation than for ground-breaking, market-moving alerts for alpha-hungry fund managers.

I’ll concede that time really is money for for hedge funds and other traders who need to make decisions before the rest of the market catches up. But I’m dubious that Twitter – let alone an automated processing of tweets – will enable traders to make better decisions. Moreover, any success would immediately be gamed, along the lines of pump and dump scams. I suppose that hasn’t put a damper on the popularity of StockTwits, but popularity does not necessarily translate to profitability for the traders. I hear that Swoopo (a great example of exploiting behavioral economics) is popular, too.

If real-time search is to be useful – and I think it really should be called alerting – then the information it provides has to have some sort of quality assurance, and not just freshness. There’s almost certainly a trade-off, since it usually takes time to vet  information for quality, even if the vetting is through crowdsourcing. But that reality doesn’t seem to have sunk in yet for the real-time advocates. I say, give it time.

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