Owen Sims sent me this interesting article which looks at whether Twitter can predict the stock market. Johan Bollen, a computational social scientist, used algorithms to measure the mood and sentiment of tweets in order to to gauge the public mood. The measure he developed was correlated with subsequent movements in the stock market. This correlation may be spurious, but behavioural economists have increasingly been interested in how public sentiment affects asset markets and they have used the news media to get a handle on sentiment. See, for example, Paul Tetlock's work in this area - click here.
As an undergraduate, I was taught about the failure of Herstatt Bank in 1974 and Herstatt risk. This bank was only the 35th largest bank in Germany at the time so why would anyone be interested in studying its failure? Herstatt failed because of its involvement in risky foreign exchange business. When it closed its doors on 26 June 1974, counterparty banks (mainly in New York) had not received dollars due to them because of time-zone differences - this is known as settlement risk. The cross-jurisdictional implications of its failure resulted in the Bank for International Settlements setting up the Basel Committee on Banking Supervision and Herstatt's failure was a key reason for the establishment of real-time gross settlements systems, which ensures that payments between two banks are executed in real time. The Bank of England's Ben Norman has an interesting post on Herstatt over at the Bank's new blog ( Bank Underground ). As well as giving an excellent overview of