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Image: Shutterstock.com

Image: Shutterstock.com

Twitter data improves analyst forecast accuracy

30 August 2019

3 minutes read

Stanley Choi

Dr Stanley Choi | Photo: CBE 

New research from The Australian National University (ANU) reveals how Twitter data can be used to increase the accuracy of profit forecasts for companies in the consumer sector.

The findings challenge the traditional view from experts that social media chatter, especially on Twitter, is just "noise" that is of no value to financial analysts. 

The study used measures of positive and negative sentiment in around 250,000 tweets relating to the top 10 airlines in North America.

The research found that analysts’ forecasts of an airline’s profit are more accurate when people tweet more frequently about negative aspects of that airline's service, including flight delays, food, crew and luggage. This relationship is particularly strong in cases where company profit is lower than in prior periods. 

The research looked at tweets relating to Alaska Airlines, American Airlines, Delta Air Lines, JetBlue, Southwest Airlines, United Airline, Allegiant Air, Hawaiian Airlines, Spirit Airlines and Virgin America.

Lead researcher Dr Stanley Choi from the ANU College of Business and Economics (CBE) said that Twitter is a more powerful information source than experts currently believe.

"We found that negative tweets increased analyst forecast accuracy, and they generally pointed to analysts expecting a greater likelihood of less profit. The less negative tweets, the better the expected profit figure,“ said Stanley, who is an academic with the Research School of Accounting at CBE.

"These results show how Twitter is a reasonably good indicator of profit levels, and the more tweets there are, the closer the forecasts are to being correct," Stanley added.

"Experts and academics usually feel this type of information is very trivial. However, once you add them up and aggregate the data, you end up with some valuable information," he further contends.

The CBE academic said it is the real-time nature of Twitter that makes it a potentially valuable tool for financial analysts.

"Tweets come directly from the customers as immediate feedback. This data allowed us to better forecast whether those customers are likely to continue to use an airline," Stanley said.

According to the academic, analysts rely on timely information because they typically update their forecast each month. However, other public sources of relevant information may not be available throughout the year.

"Twitter shows across the market what consumers are feeling about the service of a firm, which is information you may not be able to get from other sources in such a timely manner," he adds.

The ANU College of Business and Economics offers an extensive range of specialised programs in Accounting. Click here for more details.

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Updated:   11 November 2019 / Responsible Officer:  CBE Communications and Outreach / Page Contact:  College Web Team