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.