The Twitter Sentiment Index

The Economist (7 August 2023) reports that sentiment gleaned from tweets (Xes?) seems to be rather good at presaging short-term movements in both S&P500 share prices and bond yields.

In one paper a group of economists including Francisco Vazquez-Grande sifted 4.4m finance-related tweets posted between 2007 and April 2023 to create a Twitter Financial Sentiment Index, using a machine-learning model to measure each tweet’s sentiments.

The index, they find, correlates tightly with corporate-bond spreads (the difference between yields on corporate and government bonds, which usually widens as investors turn pessimistic). More than merely shadowing financial movements, posts can even foreshadow them. The overnight index before the stockmarket's open dovetails with the coming day’s equity returns.

The Twitter sentiment index is also good at anticipating shocks from tighter policy such as rate increases. Tweets tend to turn sour just ahead of these moves.

https://www.spglobal.com/spdji/en/in...ndex/#overview