Traders can now trade on emotion.
Thomson Reuters has expanded its news analytics service with MarketPsych Indices, which identify human emotion and sentiment, such as optimism, gloom, joy, fear, trust, anger, stress, urgency and uncertainty in news and social media posts.
The multi-dimensional psychological analysis focuses on emotion associated with specific countries, commodities, currencies and economic sectors, analyzing the specific attitudes expressed within stories and tracking the macroeconomic themes that are most relevant to price movements in each asset class.
According to Thomson Reuters, the detailed interpretation helps users answer in-depth questions with quantifiable evidence to support specific hypotheses in a way not previously possible.
Rich Brown, head of quantitative and event driven trading solutions at Thomson Reuters, says questions that are challenging to address can be answered directly using MarketPsych Indicators. They can be used to identify asset prices, social trends and develop under-the-radar investment hypotheses, and incorporated into investment and trading models, he argued.
According to Brown, examples of questions might include “Are there growing concerns over the stability of the Yuan’s peg to the dollar, and what does this mean for the value of the currency?’ or ‘Is the threat of violence and conflict in Iran heightening or abating, and what does that mean for global oil prices?”
Thomson Reuters’ psychological analysis indices were developed in conjunction with MarketPsych, a consultancy specializing in behavioral economics.
The indices are delivered to financial institutions as a series of real-time indicators that can be incorporated into charting and alerting applications or in quantitative models to help support asset allocation decisions and sector rotation strategies, Thomson Reuters said.