How to profit from the noise of the rabble: A new website hopes to prove that crowds of random individuals are better stock-market forecasters than the experts.
Stephan Bisse, 40, a former City trader at Goldman Sachs, who completed his MBA at the Saïd Business School in 2003, has set up ConsensusView.com, helped by two computer science graduates from Worcester College, Ed Smith and Sam Brightman.
Each day, members of the public are invited to vote on whether they think any one of a series of share prices, indexes, currencies and financial futures contracts will rise or fall that day. Voters do not specify an actual forecast; they simply predict a rise or fall, and have to do so between 4.30am in the UK and the opening of the market they are voting on. There is the lure of $1,000 (£550) for the best forecaster each month. The Oxford three hope to test the theory that crowds have wisdom, and if it holds water, create a business out of it. Bisse already runs a business importing and selling trading-system software, but believes that the website will also offer commercial opportunities if it gains momentum. One idea is to put links on the website allowing voters to click through to online services offered by stockbrokers, who would pay a commission for business introductions. The three graduates also plan to offer subscriptions to services that scrutinise voting data to help find deeper predictive trends.
The key to all these efforts, however, will be the site’s ability to attract voters and, ultimately, to forecast accurately the direction of markets. Two weeks after its launch, just 52 people were voting on it, but with a larger number the theory that a consensus view will tend to be right will be tested more comprehensively. If the theory proves correct, the website’s forecasting would become valuable and draw more visitors, some of whom would then presumably vote, further boosting the service. “With a website like this, it is chicken and egg,” says Bisse. At the moment, voters on the site include staff at ABN Amro and Goldman Sachs, the investment banks. Hedge fund traders are also among voters, although he will not disclose which funds they work for.
So how are the voters doing? Bisse and his colleagues measure performance by looking at the percentage of times the voters call the market direction correctly. If they get it right only half the time, this is no better than randomly guessing the market’s direction. But anything more than 50 per cent over a sufficiently long period suggests that the voters do have predictive ability. “We are encouraged so far,” says Bisse in his Germanic accent, sitting in a small business park office. Performances since the start of September, when the site started taking votes, vary between markets. But voters have called the daily direction of the FTSE100 index correctly 57 per cent of the time so far. For the gilts market the figure is 54 per cent, and for US 10-year bond futures the figure is 55 per cent, for example. “At the moment, it’s not that significant, but when the number of participants reaches around the 1,000 mark, it could become very, very interesting,” Bisse says. Ultimately, he hopes to draw tens of thousands of voters to the site from across the world.