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Evidence of herding?

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Evidence of herding? Correlations of error terms?"Our analysis shows that trends in the use of words by financial journalists correlate closely with changes in the leading stock indices -- the DJI, the NIKKEI-225, and FTSE-100," says Professor Mark Keane, Chair of Computer Science in University College Dublin, who was involved in the research."By plotting the distributions of words used in financial articles published online between 2006 and 2010 into a computer model, we were able to identify what we call 'verb convergence' and 'noun convergence -- where the language used by financial journalists shows converging agreement.""Our study shows that reporters converge on the same language -- 'stocks rose again', 'scaled new heights', or 'soared' -- as their commentaries became more uniformly positive in the lead up to the 2007 crash.""They also appear to refer to a smaller-than-usual set of market events -- presumably because of an increased fixation on a small number of rapidly rising stocks," explains Professor Keane. a study, TUM economists showed that the sentiment from Twitter messages develops similar to the stock market and even leads by a day. The Munich-based economists analyzed 250,000 Twitter messages written in a six-month period and related to S&P 500 listed companies. The result: If an investor had oriented his share purchases according to the Twitter sentiment in the first half of 2010, he would have achieved an average rate of return of up to 15 percent.and similar findings from Google searches authors find clear evidence that weekly transaction volumes of S&P 500 companies are correlated with weekly search volumes of corresponding company names. Thus, increasing transaction volumes coincide with an increasing number of search queries for the corresponding company name. However, stock price variations and changes of company's search volume show no significant correlation. The authors verify this effect for individual stocks as well as for the S&P 500 on an aggregated level. "Thus, search volume data seems to coincide with the attractiveness of trading a stock", says Reith.


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