Blogger output helps hedge funds to trade

May 04, 2010

Data firm monitoring influential blog sites

Hedge funds are testing out a data feed produced by monitoring a group of financial commentators that includes bloggers.

The trial is still at an early stage, but it shows how seriously the investment community is taking the opinions of those working outside traditional media outlets.

The feed – put together by Alacra, a data aggregator – monitors the output of around 25,000 analysts by combing the web for their comments. This group contains a number of prominent bloggers, such as Barry Ritholtz, Henry Blodget, Felix Salmon and Fred Wilson.

Hedge funds are taking that feed, mixing it with other data, and using the combination to try to create successful algorithmic trading strategies. So far, the data suggest stock prices outperform when sentiment at a given company has been positive for a number of weeks.

‘The feedback has been good so far,’ says Steve Goldstein, CEO of Alacra. ‘The challenge is low frequency. There are fewer than 200 companies worldwide with enough data to make sentiment-based trading decisions.’

Alacra tries to differentiate itself from other data aggregators by monitoring only a select group of what it feels are influential sources on the web. It also hones in on quotes to analyze sentiment, as it believes this is more accurate than analyzing the language of a whole article.

Other bloggers being monitored by Alacra include:
Howard Lindzon – HowardLindzon.com
Ken Doctor – Content Bridges
Michael Parekh – Michael Parekh on IT
Paul Kedrosky – Infectious Greed
Rafat Ali – Paid Content
Roger Ehrenberg – Information Arbitrage.

By Tim Human