Could Twitter help banks make market predictions?

By Nicole Miskelly | 18 August 2015

Bank of England (BoE) analysts believe that social media platforms such as Twitter could be used by banks to predict market movements, give early signs of unemployment data and help predict an impending bank run, City AM reports.

The analysts came to realise the predictive powers of Twitter in the run-up to the Scottish independence referendum when an experimental feed was built by the analysts and IT experts from BoE to collect and analyse real-time tweets, in a bid to assess the chances of a run on the banks if Scotland left the European Union.

A bank run results when a large number of customers withdraw their deposits at the same time, due to concerns over the bank’s solvency. This is typically a ‘panic’ situation and in extreme cases the bank’s reserves may not to be enough to cover such a large amount of withdrawals.

Although the chances of a bank run diminished when it became clear that Scotland would not be leaving the EU, the analysts still found some value in Twitter.  “In the end fears of a bank run were not realised, so the jury is still out on Twitter…even so this was a valuable exercise, building capabilities and knowledge to serve as a foundation for future projects,” the team wrote in a BoE blog post yesterday.

According to the analysts, a variety of market patterns can be determined from Twitter and social media, including geo-tagging which they identify could enable them to estimate regional breakdowns of unemployment.  

“Social media provides a rich vein from which to mine information, and text data...central banks are themselves adopting these tools and techniques to address a wide range of potential applications across central banking, and build more agile and wide-ranging data analysis capabilities for the future,” the team wrote.

According to City AM, BoE is not the first bank to realise that Twitter can be used to make predictions, in July the European Central Bank published research which said Twitter can be used as a predictive tool for stock market movements and is actually better than Google and many surveys. "Twitter bullishness has a statistically and economically significant predictive value in respect of share prices in the United States, the United Kingdom and Canada," it said.

In addition, the report stated that Twitter’s predictive powers become even better in “extreme market conditions” such as the global financial crisis.

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