Researchers claim rises in Google searches on financial topics such as ‘revenue’, ‘unemployment’, ‘credit’ and ‘nasdaq’ could presage a fall in the sharemarket. Photo: Bloomberg
Next time you develop a case of sharemarket jitters, you might want to try trawling Google trends to see if you're alone, new research from Warwick Business School and Boston University suggests.
According to the research from Warwick and Boston University academics, changes in the volume of certain search terms on Google could provide an indication of what way the market might head by reflecting investor sentiment.
More precisely, the research found that a higher frequency of searches for financial topics such as "revenue," "unemployment," "credit," and "nasdaq" could presage a fall in the sharemarket, whereas a decline in searches on financial topics could indicate the sharemarket is on the way up.
"We found that changes in the volume of certain Google search terms could be used as early warning signs of subsequent stock market movement," Warwick Business School associate professor of behavioural science, Tobias Preis said.
To reach their conclusion, which is published in Scientific Reports in a paper titled Quantifying Trading Behavior in Financial Markets, the researchers used Google Trends to analyse changes in the frequency of 98 terms between 2004 and 2011.
The paper mounts the argument that investors may search for more market information before making a decision to sell at lower prices and claims that trading on the basis of the volume of queries using the keyword "debt" could have brought returns of more than 300 per cent.
"Analysis of Google Trends data may offer a new perspective on the decision-making processes of market participants during periods of large movements," the University College of London's Helen Susannah Moat said.
"It's exciting to see that online search data may give us new insight into how humans gather information before making decisions - a process which was previously very difficult to measure."
Of course, following this week's Twitter hoax-induced flash market slump investors may feel wary of basing investment decisions on what they see online.
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