New Dow Jones Lexicon Analyzes Patterns in the News to Create More Powerful Trading Strategies
Published: April 21, 2010 / Author: Mendoza College
For the first time, traders, quantitative analysts and asset managers can analyze complex patterns within market-moving Dow Jones news to develop predictive and profitable trading strategies. Dow Jones Lexicon, unveiled today, gives traders the ability to incorporate sophisticated news analysis directly into their trading models and strategies — or derive entirely new ones.
Dow Jones Lexicon, powered by derived data technology that converts news content into measurable, actionable data, examines massive volumes of Dow Jones real-time news, identifying crucial words and phrases that signal trends or patterns. The words are analyzed for sentiment, frequency and other relevant analytics based upon proprietary dictionaries that determine the “tone” of the news. Researchers and traders use this data to build customized indicators and deploy them as part of trading models, uncovering new opportunities and creating measurable competitive advantage.
“Dow Jones Lexicon represents the next frontier in analytics by providing traders, quants and researchers with new ways to uncover trends and opportunities,” said Rob Passarella, vice president and managing director of institutional markets, Dow Jones & Company. “We all know that news moves financial markets, but the challenge has always been to quantify the news in multi-factor models and analysis. By taking large collections of business news content and analyzing it to identify factors that can cause significant shifts in the market, traders can quickly take advantage of trading windows that can open and close without warning.”
Dow Jones developed the custom dictionaries based on feedback from several academics who acknowledge that high-quality data is paramount to any trading strategy.
“Relevant economic information goes beyond the accounting numbers,” said Bill McDonald, professor of finance, University of Notre Dame. “Sentiment analysis provides a method to assess the massive amounts of extant text in milliseconds and its success is critically linked to the quality of the underlying dictionaries.”
Dow Jones Lexicon is available as an XML-based feed and can be paired with Dow Jones’s real-time text feed or archival content. It can also be applied to custom dictionaries so that firms can leverage existing in-house research to build models while deploying Dow Jones Lexicon to process news content.