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Twitter predicts the futureCostas Milas is a professor of finance at the University of Liverpool. He is an expert in UK, U.S. and Eurozone monetary policy issues, such as interest-rate setting behaviour. He is also a leading authority on the debt policies pursued by Eurozone economies including Greece, Italy, Spain, Ireland and Portugal.

Costas appeared on the University of Liverpool Podcast to discuss how analysing social media and Google searches can predict financial and political events with increasing accuracy.

5 quick posts about the predictive capabilities of Twitter

  1. Understanding Twitter’s real-world impact
    For many users, the appeal of Twitter is the ability to get updates in real-time direct from politicians, news outlets and leading journalists without any third-party filters. However, it can also affect the real world.

    In 2010 and 2011, for example, a debt crisis meant there were genuine concerns that Greece could crash out of the European Union and Eurozone.

    Costas found that the reaction to and sharing of so-called ‘Grexit’-related tweets from authority figures had a measurable effect. Costas says: “This volume of tweets, which expresses concern, has been shown to affect the cost of borrowing over and above traditional economic variables.”
  2. In times of stress, Twitter comes to the fore
    Traditional predictive measures in finance include things like a country’s history of default, its debt-to-GDP ratio, and its economic wealth.

    But in times of crisis and uncertainty, these measures can fail to offer much clarity. “They don’t work as well in stressful times,” says Costas, “and this is where Twitter, for example, which reflects sentiment in real time, is able to outperform these variables.”

    He adds: “Twitter has been shown to predict in a much more powerful way when it comes to periods of financial stress.”
  3. Twitter’s user base is key
    Twitter users represent a different demographic to other social media platforms. For example, 40% of Twitter users have a bachelor’s degree or above – compared to 30% of Facebook users and 29% of the general U.S. population.

    Many Facebook users get their news only when it is posted by another friend. In contrast, Twitter users are more likely to get their news direct from journalists and news organisations.

    Costas explains: “[They’re] getting the financial information much faster than Facebook users. And you can think about them acting on this information much faster than Facebook users. So this might explain why Twitter is more powerful than Facebook in predicting financial market trends.”
  4. Is Twitter suggesting a bad Brexit deal for the UK?
    Using the same methodology, Costas thinks Twitter can also be used to predict the outcome of political events.

    He thinks Twitter suggests there could be bad news for the UK and its hopes of securing a successful exit from the EU. His analysis has found that while Twitter users in the UK are discussing Brexit in “a lively manner”, the same is not true in either Germany or France, the two leading countries on the EU’s side of negotiations.

    “The electoral base in Germany or France are not very much bothered about Brexit… And to the extent that this is true… you wouldn’t expect EU policy makers to have an incentive to give in to our demands… Why on earth should EU policy makers give in to our demands if their electoral base… doesn’t care about Brexit?”
  5. The biggest challenge remains untackled
    The key feature of Twitter is its ability to share and spread information more quickly than ever before. But the rise of fake news could have serious consequences, particularly for financial markets.

    Costas warns: “Twitter can be thought of as an efficient tool of predicting finanical markets, because everybody at the same time has access to the very same information. But… the bad thing about that is… what happens if this information is false?”

About this podcast

The University of Liverpool Podcast aims to bring listeners closer to some of the academic experts, authors and innovative thinkers from the University who, through their in-depth analyses, research and discoveries, are affecting positive change in the world today. Each episode features one or more of our academic experts discussing research in their specialist field. Subscribe to the University of Liverpool Podcast via iTunes, Tunein and Google Play Music (US and Canada only).

Interested in learning more about the University of Liverpool’s online business and management programmes? Find out more about the MSc in International Accounting and Finance and our other management programmes.

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