Researchers Google their way to profits

Research published by the Warwick Business School, University College London and Boston University suggests that investors can beat benchmarks by tracking changes in the frequency certain search terms appear in Google.

Authors Tobias Preis of Warwick, Helen Moat of UCL, and Eugene Stanley of Boston analysed changes in the frequency of 98 key search terms such as ‘revenue’, ‘unemployment’, ‘credit’ and ‘nasdaq’ between 2004-2011.

The found that using changes in the volume of searches as the basis of a trading strategy investing in the Dow Jones Industrial Average Index could generate strong profit.

Trading on the changes attributed to the word ‘debt’ alone could have resulted in returns of up to 326%, the academics state in their paper Quantifying Trading Behaviour in Financial Markets.

Preis, associate professor of Behavioural Science at Warwick, said: “We found that changes in the volume of certain Google search terms could be used as early warning signs of subsequent stock market movement.”

This conclusion is based on the findings of the research, which suggest that falls in financial markets may be preceded by periods of investor concern. Investors may use Google to look for more information about the market before selling at lower prices. Conversely, a fall off in searches on key terms could be used as a signal for pending stock market gains.

The data from Google thus acts to privide insight into how humans gather information before making decisions, the research authors said.

The study was part of the IARPA Open Source Indicators programme, which aims to develop methods for continuous and automated analysis of publicly available data that can anticipate events.

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