Information and news giant Thomson Reuters has launched a psychological analysis tool that gauges market sentiment by analysing human emotion in news and social media in order to influence and support clients’ trading strategies.
Thomson Reuters MarketPsych Indices (TRMIs) is designed to scour machine readable news and provide analysis on emotion and sentiment associated with specific countries, commodities, currencies and economic sectors.
Developed in conjunction with MarketPsych, a consultancy specialising in behavioural economics, TRMIs can be 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.
Users can view and model the impact of investor psychology by analysing the specific attitudes expressed within stories and tracking the macroeconomic themes that are most relevant to price movements in each asset class. Officials at the vendor say this detailed level of interpretation helps users to answer questions with quantifiable evidence to support specific hypotheses in a way not previously possible.
“Questions that are challenging to address can be answered directly using our MarketPsych Indicators and easily incorporated into investment and trading models. Questions like: ‘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?’,” says Rich Brown, head of quantitative and event driven trading solutions at Thomson Reuters.
“This new capability can be used to identify economic sector activity, asset prices and social trends and develop under-the-radar investment hypotheses.”
The TRMIs have been tailored to specific topics and asset classes and reflect the levels of specific psychological dimensions expressed in news and social media such as optimism, gloom, joy, fear, trust, anger, innovation, violence, conflict, stress, urgency and uncertainty, among others.
The TRMIs also provide a set of metrics on common macroeconomic themes known to influence the prices of currencies and commodities, the growth of economic sectors, and the development of nations. For instance, the feed quantifies such items as ‘CurrencyPegInstability’ for foreign exchange markets or ‘CropDisease’ for agricultural commodities.
Thomson Reuters MarketPsych Indices are described as a natural complement to Thomson Reuters News Analytics (TRNA) as they provide a top-down view of market sentiment from a behavioural finance perspective relating to asset classes, sectors, and countries. When the MarketPsych Indices are used in combination with the news analytics data, users can better understand how the bottom-up signals in TRNA are affected by the psychological states of the market.