Twitter-Based Hedge Fund Makes Debut

Derwent Capital Markets, the London-based hedge fund that's relying on Twitter to predict market moves, made its highly anticipated debut today armed with more money than expected in its coffers.

The fund was originally slated to launch April 1 with $40 million in assets, but due to strong demand from global investors it had to delay its debut. According to a HedgeFund.net report, the firm began trading today with an additional $100 million under its belt.

"For years, investors have widely accepted that financial markets are driven by fear and greed but we've never before had the technology or data to be able to quantify human emotion. This is the fourth dimension," Derwent co-creator Paul Hawtin wrote in a statement to HedgeFund.net.

And while plenty of skeptics abound, Derwent's gamble has generated plenty of excitement in academia and on Wall Street. If proven successful, the strategy will undoubtedly ignite copycat trading strategies and further research into how Twitter can be used to gauge global thought on a range of issues. I for one am certainly intrigued.

If Twitter can be used to predict election results, box office receipts for movies, and even to mobilize people in the overthrow of governments, why can't it successfully be deployed to foretell the stock market? Johan Bollen, an Indiana University professor and Derwent consultant, built the algorithm and said it managed to successfully predict market moves in the fall of 2008, even as the economy imploded amid one of the most volatile periods for equities trading in U.S. history.

On the other hand, unpredictable events happen all the time and there's simply no technological model for that. And through the years there have been plenty of funds to claim they can predict what's going to happen days in advance, only to go out of business when their strategies inevitably fail.

But the most fascinating aspect of Derwent's plan is no firm has ever tied its trading decisions to social media. Today could mark the start of a revolution on Wall Street. Stay tuned.