Member Article

Google search footprint linked to stock market movements

Researchers from the University of East Anglia and the University of Essex have suggested investors can predict market movements by looking at the frequency of Google keyword searches.

The team analysed Google search frequency data for keywords related to 30 of the largest stocks traded on the New York Stock Exchange, including Coca Cola, Microsoft, Johnson and Johnson, McDonalds, Procter and Gamble and Exxon Mobil.

Their findings are the first evidence that online demand for information has a direct effect on all measures of stock market activity, a concept which has been debated for years at a theoretical level.

Dr Nikolaos Vlastakis, from Essex Business School, said: “We derived two new measures for information demand – one for the individual company and one for the whole market - and discovered that both have a strong association with stock return volatility and trading volume.

“Interestingly, we also found that the link between information demand and market activity becomes more prominent during turbulent times, such as the recent financial crisis.”

Prof Raphael Markellos from UEA’s Norwich Business School added: “We explain this latter effect by showing that information demand is linked to investor attitudes towards risk.

“In periods such as the recent financial crisis, investors try harder than usual to reduce uncertainty by searching for information via Google.”

The study also remarks that it is not only large news agencies which impact stock market activity. Online information and social media, such as Twitter, Facebook and blogs do too.

Dr Vlastakis said: “Our results suggest that information formation and discovery may be shared between mainstream information brokers and alternative sources on the web – such as blogs, local information providers, and social media.

“For certain types of news, the big suppliers still have the edge due to expertise and resources, but there are cases when news may be first reported ‘unofficially’ elsewhere.”

The report was published in the Journal of Banking and Finance.

This was posted in Bdaily's Members' News section by Tom Keighley .