Using Google to predict the stock market

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Three professors have claimed that Google can be used to predict the rise and fall of the stock market, possibly bringing in returns of more than 300%.

Dr Tobias Preis of Warwick Business School, Dr Helen Susannah Moat of University College London, and Dr H. Eugene Stanley of Boston University analysed changes in the frequency of search terms such as ‘revenue’, ‘unemployment’ and ‘debt’ from 2004 to 2011.

In their paper entitled Quantifying Trading Behavior in Financial Markets published in Nature Publishing Group’s Scientific Reports, the team of academics demonstrate that trading on the basis of the number of queries on Google using the keyword ‘debt’ could have brought in returns of up to 326%.

“We found that changes in the volume of certain Google search terms could be used as early warning signs of subsequent stock market movement,” said Dr Preis.

Investors may search for more information about the market before they are prepared to sell at lower prices. Conversely, the researchers found that drops in interest in financial topics could be used as a signal for subsequent stock market rises.

“Analysis of Google Trends data may offer a new perspective on the decision making processes of market participants during periods of large market movements”, said Dr Moat.

  • Matt on 30/04/2013 2:21:32 PM

    So three professors used past information to make a connection with past events and now are saying it could be used to predict the future. Yeah, it's called data mining. Idiots. Not the professors, anyone who takes this serious.

  • Innocent Observer on 30/04/2013 12:46:22 PM

    So, using a (tiny) 7 year dataset over which time we saw arguably the most global debt crisis of all time reached its peak, they were able to determine that the word "debt" had some correlation to equity market performance? Who would have thought.

    In other news, controversially there appears to be a correlation between actual company earnings, profitability and share price

  • Fedup on 30/04/2013 10:04:02 AM

    How much money has Dr Moat made trading the market. Let me know if i'm wrong but i bet it would be around the figure made when touching my thumb to my indexfinger.

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