Google Searches Could Predict Stock Market Changes
August 11, 2014 12:29 PM EST
The stock and share investment need not be a blind game anymore as investors can play safe and invest sensibly based on Google search results that can predict the fluctuations in the stock market and the changes in stock prices. A new study at Boston University and the University of Warwick, suggests that the search topics of users and the publicly available data from Google Trends, which track the top trending topics can be effectively used to predict stock price changes and a probable fall in the stock prices.
In the research study, Google Trends between 2004 and 2012 and search volume for these topics were compared with fluctuations in the stock market index for 500 largest American companies and the Standard & Poor's 500 Index. The study has found that the keywords for particular searches of users go up substantially in the weeks preceding a crisis in the stock market.
As many as 98 search terms that were top trending were tracked during the study, which included a wide range of stock and investment related words such as markets, portfolio, shares and unemployment among others. The most popular search term that was used in the stock market prediction was the term "debt." The researchers observed that when Google users search more for business or politics related topics there was a possibility of a sell-off of stocks whereas a lull in this search pattern predicts a stable market and a slight increase in stock prices. Searches related to non-investment terms such as music, happy or lifestyle were not found to have any influence in the rise and fall in stock prices.
The study team analysed the search patterns of the users in the weeks before a plunge in stock prices and analysed over 100 topics to find the ones that might be correlated to the stock market conditions. They discovered that only business and political topics were found to be correlated to the stock and share market.
Financial crisis and market slowdown can happen partly because of the investment decisions of individuals. Google Trends plays an important role in understanding the changes in the decisions and analysing the collective decision-making patterns of investors. This makes Google Trends an important tool in helping the researchers to examine the factors that influence the decision making of the investors around the world and in predicting stock market fluctuations.