Twitter (TWTR) can be a powerful tool to predict corporate earnings, new research suggests. ‘It’s guided in the concept of wisdom of crowds – a group of diverse problem solvers can predict outcomes better than experts,’ said Eli Bartov, a professor of accounting at NYU’s Stern School of Business and one of the authors of the research report. The researchers analyzed 998,495 tweets during the span of four years in the nine-days leading up to a company’s earnings report. The study tracked 3,662 Russell 3000 firms. ‘The aggregate opinion contained in individuals’ tweets about a company’s prospects can predict its earnings and the stock price’s reaction to them,’ the report said. The findings were more clear in lesser known companies that don’t garner much press or analyst coverage. ‘We document a positive association between our measures of aggregate tweet opinion written prior to the earnings announcement and the abnormal stock price reactions to the earnings announcements,’ the report noted. Investors have long relied on analyst opinion, quarterly reports from companies and technical analysis to make stock trades. Bartov suggests adding Twitter to one’s research regimen. ‘In order to invest wisely in the stock market as opposed to gambling, you need to base your investment decisions on information,’ Bartov said. TheStreet’s Scott Gamm reports from New York and is a graduate of NYU Stern.
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