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Tuesday, May 08, 2007

Use of sentiment analysis in stock investments

Recently read an article from the Investor's Daily Edge. The Investor's Daily Edge article compares the market reaction to the most recent earnings announcement of two internet stocks - Google and Amazon.com.

Google's earnings beat the consensus estimate by 38 cents, causing its stock to close 2.3% at the end of the next day. Amazon.com's earnings came up 11 cents higher than the estimated earnings but closed 26.9% higher.

Reason for a much higher % increase in case of Amazon.com: pessimistic expectation towards Amazon.com's earnings prior to their release. Unlike Google's stock which was rated 'buy' by 20 out of 20 analysts, Amazon.com's stock had a mix ratings - with some analysts recommending buy, others recommending hold and still others recommending sell. In addition, many investors had shorted Amazon.com's stock. Result: when Amazon.com came out with better than expected earnings, it's stock went up drastically more than that of Google.

The article mentions that sentiment analysis should also be another variable to consider when investing in stocks.

For complete article, check out:

Investor's Daily Edge: Sentiment at its Best

posted by Ruby @ 8:40 AM

1 Comments:

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