FX.co ★ People use Google searches to predict the drop of stock indices

When people do more Google searches on terms such as “stocks,” “portfolio” and “economics” it is likely to mean that they are worried about the state of the economy, and there is impending decline in stock indices. This fact was revealed in the article by Tobias Preis, Helen Susannah Moat and Eugene Stanley, posted on Scientific Reports website. According to The Financial Times, the survey was conducted under the U.S. government program set up to study the predictive power of many different types of data.
According to scientists, fewer searches on terms related to economy suggest that stock indices will rise in the nearest future. The analysis was based on the data for the period between 2004 and 2011. Tobias Preis said that a short-term trading constructed around searches for “debt” would yield 326% investment return for this period. The second most profitable strategy is said to be the one based on searches for “colour”.
However, there was no justification for the strategy’s success (i.e. no certain financial assets were given) since the efficacy was evaluated by the model automatically.
At the same time, the researchers noted that their findings might not apply to future stock market movements because the people’s searching strategies could change.
Previously, there were a lot of attempts to disclose the correlation between the Internet users’ behaviour and the fluctuations of stock indices. Thus, in 2010 there was an article about the relation between overall negative sentiment of Twitter users and the stock market decline. However, the only hedge fund, Derwent Capital Markets’ Absolute Return, which set up to trade on information about market sentiment revealed on Twitter closed after a month. At that, the fund returned just a 1.86% profit.