Crown Sourced Sentiment Platform [Sect. 6
https://s3-eu-west-1.amazonaws.com/sharpe-website/whitepaper.pdf]
The origins of crowd-sourced sentiment date back to the earliest days of
hedge funds. The first hedge fund was created in 1949 by A. W. Jones, whose
contributions to the field foreshadowed modern portfolio theory. Jones suc-
cessfully ’hedged’ his positions by taking long and short positions to insu-
late his fund, and utilised leverage (borrowed capital) to increase his returns.
Arguably one of his greatest achievements, however, was foreseeing what
cognitive science and behavioural psychology would only come to under-
stand half a century later: that participant or traderemotionscreated trends in
asset price action. Jones argued that price increases generated opti-
mism (or confidence) in an asset, fuelling further price increases, resulting
in a positive feedback loop causing an asset’s price to deviate from its in-
trinsic value, such that these trends could be identified from following price
action.
Jones quickly realised that to determine the best long and short
positions, he should not rely on chart watching alone, but should source
sentiment from those with a stake in market performance. Therefore, he cre-
ated a system whereby he invited brokers to select their favourite long and
short positions, simulating running live portfolios from these stock picks.
Jones utilised these predictions to select stocks and positions for his hedge
fund, rewarding brokers in proportion to the value of the predictions they
provided. Through this method, Jones was able to achieve substantially
improved returns on his investments.
