Google search terms might provide warning signs of stock market moves, according to a paper published by Nature Publishing Group's Scientific Report.
The paper, “Quantifying Trading Behavior in Financial Markets Using Google Trends,” co-authored by Tobias Preis, associate professor of behavioral science and finance at Warwick Business School; Helen Susannah Moat, a research associate at University College London; and H. Eugene Stanley, a physics professor at Boston University, analyzes volumes of queries related to 98 Google search terms between 2004 and 2011, and how those correlate with market performance.
The co-authors analyzed Dow Jones closing prices on the first trading day of the week and used the Google Trends service, a tool that identifies related keywords, to determine how many searches have been made in that time period for search queries related to stock markets.
The analysis uncovers “the relationship between the volume of search queries for a specific term and the overall direction of trader decisions,” according to the paper. A hypothetical investment strategy was also created for a portfolio using search volume data.
“We found that changes in the volume of certain Google search terms could be used as early warning signs of subsequent stock market movement,” Mr. Preis said in a news release.