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TEXT MINING AND PREDICTION MARKETS: The recent work on the intersection between text mining and prices counts as some of the most interesting work being done in the prediction market field. A few thoughts:- The concept has clear applications outside of political markets: It could be used as a trading strategy (for example, see how traders in real markets are already using similar text mining strategies) or as a market maker for illiquid markets.
- There are applications for corporate prediction markets as well: Every day, volumes of easily accessible text are produced about companies. This comes in the firm of news articles and analysis by third parties, traffic on internal company email lists, internal and external blog posts, wikis and other available firm documents. As I wrote in July, a shrewed text mining algorithm could turn these writings into liquidity for the internal prediction markets. It'd be a bit of a problem for the current generation of prediction market vendors, who might have trouble gaining access to all these documents.
- In either case, traders or market makers using text-mining for algorithmic trading need to deal with potential spammers who could write articles to trick the algorithm into submitting dumb bids.
On that note, the authors should consider text-mining political blogs in search of a better algorithm for predicting price movements. Firms such as Collective Intellect or Neilsen's BlogPulse already have a large store of blogmining data. Note that Collective Intellect is already designed to service the financial industry with data from textmining blogs.
For textmining junkies, Text Mining, Visualization and Social Media is a great blog.
Cross posted at Midas Oracle.
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Disclaimer: Opinions expressed on this site are the author's and not necessarily his employer's.
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