Author: Tiernan Ray
Ever since British economist JohnMaynard Keynes first declared that investors are prey to people’s urge to act, however irrationally, the financial world has tried to quantify the impact of public sentiment on stock prices. Solving the puzzle would give investors inthe know a huge advantage over the competition.
Over the past decade, one vibrant corner of that still ongoing research has been data analysis. The goal has been to tease out clues about sentiment that are hidden in news articles, regulatory filings, transcripts, and press releases.
With the rise of artificial intelligence, the sophistication of sentiment-measuring technology is increasing. And a number of companies such as AlphaSense, Alexandria Technology, and Aiera are racing to perfect the software that makes it possible.
But they face a number ofchallenges. The technology is still imperfect and still must prove that it canoutperform more basic investment strategies like stock index funds.
“If youcan systematically and objectively track over time how the facts change, interms of positive facts and negative facts that emerge in a conference call,say, that could have real value,” says David Wong, an investment analyst withInstinet.
Last month, AlphaSense, a startup that sells its service to hedge funds and financial analysts, introduced technology that sifts though documents to determine the tenor of their language. The so-called sentiment tool then provides an overall score for the tone that traders can then use to invest.
Last week, AlphaSense announced that it had received an additional 50 million in funding, led by Soros Fund Management. Since its founding in 2011, AlphaSense has received over $90 million in financing.
Read More: Here