Predicting Stock Market Falls with Google Search Trends: MBA News | TopMBA.com

Predicting Stock Market Falls with Google Search Trends: MBA News

By Tim Dhoul

Updated July 29, 2014 Updated July 29, 2014

Want to know if the stock market is about to crash? A team of researchers from Warwick Business School and Boston University think they may have found a way of predicting this eventuality – by analyzing Google search trends.

Their newly published study took Google search trends among US internet users between 2004 and 2012 and compared it to the trading performance of stock market index, the S&P 500.

One of the authors of the study, Suzy Moat, a behavioral science professor at Warwick Business School outlined how upsurges in searches across two key topics precipitated significant drops in the stock market:

“We were able to identify a historic link between rises in searches for terms for both business and politics, and a subsequent fall in stock market prices,” she said.

Warwick Business School believes method could have wide-ranging predictive value

“Our results are in line with the hypothesis that increases in searches relating to both politics and business could be a sign of concern about the state of the economy, which may lead to decreased confidence in the value of stocks, resulting in transactions at lower prices,” Moat continued.

The team of three at Warwick Business School, aided by a member of Boston University’s physics department, believe their method has far-reaching potential – not only could it act as a warning sign against coming drops in the stock market, but the method’s principles could be applied to any number of real-world events.

Chester Curme, a research fellow with Warwick Business School and lead author of the study, says analyzing internet data, such as Google search trends, “allow us to learn about how people gather information online before making decisions in the real world. So there's potential to use these search data to anticipate what large groups of people may do.”

However, the team did discover that the relationship between Google search trends and stock market moves did decline in more recent years, suggesting that automated trading strategies are now increasingly able to implement internet data.

The Warwick Business School team now wish to extend their analysis to see how links between search tends and collective action evolve over time and what significance this might have for events taking place in the real world.

This article was originally published in July 2014 .

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Tim is a writer with a background in consumer journalism and charity communications. He trained as a journalist in the UK and holds degrees in history (BA) and Latin American studies (MA).

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