Department of Economics
1 Dent Drive
Lewisburg, PA 17837
Institutional Affiliation: Bucknell University
NBER Working Papers and Publications
|March 2017||What can we Learn from Euro-Dollar Tweets?|
with Eric van Wincoop: w23293
We use 633 days of tweets about the Euro/dollar exchange rate to determine their information content and the profitability of trading based on Twitter Sentiment. We develop a detailed lexicon used by FX traders to translate verbal tweets into positive, negative and neutral opinions. The methodologically novel aspect of our approach is the use of a model with heterogeneous private information to interpret the data from FX tweets. After estimating model parameters, we compute the Sharpe ratio from a trading strategy based on Twitter Sentiment. The Sharpe ratio outperforms that based on the well-known carry trade and is precisely estimated.