Twitter v Market Alpha

With the recent twitter outage, it is interesting to take a look at what the markets did during that time. There have been a number of studies that I have referenced on my twitter feed in the past about the hedge funds and research that have been dedicated to twitter outages and I’ll admit my fun study doesn’t go into the sort of depth that it could or should to be used as research in trading. Nonetheless it is interesting to look at how the markets behaved in response to the outage. There is some speculation that trading idea sharing on twitter affects the market or can be used to acheive alpha in the markets. Based on my little research – twitter makes no difference whatsoever. Traders and investors will perform just as well with or without twitter as is evidenced by the facts in this chart…

According to CNET, the twitter outage started at 11:20am ET and ended at 12pm ET. This is the area that is highlighted here on the chart to the left. You can see the SP-500 with the bar chart and the DJ-30 represented by the white line and the NASDAQ composite represented by the blue line. All three of these markets generally followed the same pattern, up and down and up during the outage. Looking at just this minute view it almost would seem as the market was down during the period that twitter was down.

That is why we need chart number two below. It shows the same markets with the same box during the outage but over most of the trading hours on the 26th and into the trading hours on the 27th. This one doesn’t really look like the market was down during the outage in relation to how the markets were trading while twitter was working just fine. An important note about why this is relevant. If we have a good piece of research here we would state all our assumptions about other influences on the markets at this time, other factors that would affect the market being up or down, etc. Instead of doing that we are just comparing the market against itself. In other words the outage was short enough that any of those other influences should still be present during the several hours before and the several hours after the twitter outage. Looking at this chart, the market doesn’t seem to be doing much of anything different during the outage in comparison to what it was doing without the outage.

Lastly, this is a one hour chart of the same and again, the market doesn’t really seem to be doing anything different on this particular day that is drastic in comparison to what it did on other days. (e.g. the 27th was much more drastic than the 26th). Despite the value of Stocktwits and twitter, the success of the participants, and the fact that these are drastically different tools than what has been available to market participants in the past, they seem to be a long ways off from truly influencing the markets (at least on a short term scale). I think this is where the value is though, Twitter/Stocktwits provides individuals the opportunity to find small ideas and take action on them while the rest of the market is busy doing their own thing and investing/trading based on their own ideas.