Wikipedia analysis could help traders anticipate market movement

Wikipedia could provide traders with an early warning of stock market movements, according to a university study.

Researchers at the Warwick Business School in the UK looked at changes in the frequency with which finance-related pages were viewed on Wikipedia, establishing links to subsequent drops in stock value on the Dow Jones Industrial Average.

Wikipedia, an online encyclopaedia, allow users to edit entries, and also enable the tracking of page views for individual entries over historic periods based on its WikiStats server logs.

Using the data provided, the researchers collated information on 30 Wikipedia pages relating to companies listed in the Dow Jones index between December 2007 and April 2012. These companies included Procter & Gamble, Bank of America, and The Walt Disney Company.

The researchers, working alongside students from Boston University in the US, were able to detect a link between an increase in page views of companies and a subsequent fall in stock value.

It was found that a trading strategy based on the changes of frequency in page views led to an increase in profits of 141 percent.

“These results provide evidence that online data may allow us to gain a new understanding of the early stages of decision making, giving us an insight into how people gather information before they decide to take action in the real world,” said Dr Suzy Moat, Senior Research Fellow at Warwick Business School.

The researchers also looked at the impact of basing a trading strategy on pages relating to wider general financial topics, as opposed to indiviual companies. Looking at 238 pages including macroeconomics, capital and wealth, it was discovered that a trading strategy could generate profits of up to 297 percent.

In a separate study in April, the researcher also found a correlation between Google query volume and stock market movements.

The research indicated that an increase in searches made for a company on Google often preceded a decrease in the stock value of a company.  This is likely to be due to a period of concern from investors, who may be searching for market information before selling at lower prices.

Meanwhile, a decrease in the number of Google searches often coincided with an increase in the stock value, the research highlighted.

Monitoring web behaviour has become increasingly prevalent among traders, with social media sentiment analysis widely reported.

However, problems with trading strategies based on Twitter came to the fore recently when Associated Press’ account was hacked and used to display erroneous information which temporarily knocked billions of dollars off the Dow Jones index.

The incident led to an investigation by US regulators into the use of social media analysis with high frequency trading systems.

Copyright © 2013 IDG Communications, Inc.

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