The Noisy Channel

 

Can Real-Time Search Help Hedge Funds?

June 25th, 2009 · 4 Comments · General

I haven’t exactly been generous in my opinons about the widespread obsession with “real-time” search. But in today’s Telegraph there’s at least a story that makes sense in theory: “Hedge fund managers betting Twitter will give them an edge in rapid trading“.

In practice, I’m pretty skeptical, as is Gwen Robinson at the Financial Times Alphaville blog. She writes:

That’s very interesting, because several hedge fund managers we spoke to dismissed the idea variously as “all twatter” and “rubbish” – not least because Twitter has carved a reputation more for unfounded speculation and even sensational disinformation than for ground-breaking, market-moving alerts for alpha-hungry fund managers.

I’ll concede that time really is money for for hedge funds and other traders who need to make decisions before the rest of the market catches up. But I’m dubious that Twitter–let alone an automated processing of tweets–will enable traders to make better decisions. Moreover, any success would immediately be gamed, along the lines of pump and dump scams. I suppose that hasn’t put a damper on the popularity of StockTwits, but popularity does not necessarily translate to profitability for the traders. I hear that Swoopo (a great example of exploiting behavioral economics) is popular too.

If real-time search is to be useful–and I think it really should be called alerting–then the information it provides has to have some sort of quality assurance, and not just freshness. There’s almost certainly a trade-off, since it usually takes time to vet  information for quality, even if the vetting is through crowdsourcing. But that reality doesn’t seem to have sunk in yet for the real-time advocates. I say, give it time.

4 responses so far ↓

  • 1 jeremy // Jun 25, 2009 at 10:45 am

    And if real-time search really is that valuable, wouldn’t there be incredible incentive for Twitter to delay the feed — the search across that feed I mean — by 15 minutes, and use that knowledge themselves, first?

  • 2 Panos Ipeirotis // Jun 25, 2009 at 11:40 am

    Twitter has too much noise to be a reliable early signal. By the time the signal becomes clear (ie many people mention the same story) the story is breaking news for the major wires.

    The following quote is pretty revealing of the speed required by the high frequency traders:

    http://www.elitetrader.com/vb/showthread.php?threadid=161595

    I was speaking at Reuters last week, and they mentioned to me that they were breaking their news flows into optimized sixty byte packets for their arms race-oriented clients, because that was the fastest way through network. (Anything smaller gets queued by some network algorithms, so sixty bytes seems to be the magic number).

  • 3 Daniel Tunkelang // Jun 25, 2009 at 11:45 am

    Panos, I love the comment on that post that “the ONLY thing anyone is interested in is High Frequency Trading – regardless of your personal returns or anything else”. Sounds a lot like the obsession with real-time search in the blogosphere. I suppose the good news is that people are so similar across disciplines. Oh wait, that’s also the bad news.

  • 4 dinesh vadhia // Jun 26, 2009 at 9:23 pm

    You guys are absolutely right that the noise to signal ratio is high for Twitter and I suspect for all the real-time search players. The sad truth is that, like many people’s obsession with the minutest details of celebrities lives, noise rules.

    Dinesh

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