Can Google predict the stock market? Researchers say analysing search terms can act as 'early warning system'

Google could be used to make money by predicting movements in the stock market, according to a new study.

An analysis of changes in the internet search engine's query volume for search terms related to finance reveals patterns that could be interpreted as early-warning signs of stock market moves.

Researchers analysed changes in the frequency of 98 terms - such as 'revenue', 'unemployment', 'credit' and 'nasdaq' - in Google searches from 2004 to 2011.

Should have just Googled it: Researchers analysed changes in the frequency of 98 terms - such as 'revenue', 'unemployment', 'credit' and 'nasdaq' - in Google searches from 2004 to 2011 and found they could give early warning of stock moves

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 per cent

HOW THEY DID IT

Researchers analysed changes in the frequency of 98 terms - such as 'revenue', 'unemployment', 'credit' and 'nasdaq' - in Google searches from 2004 to 2011.
To see a complete list of the terms used and their success, click here.
They believe investors may search for more information about the market before they are prepared to sell at lower prices
The team of academics showed 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 per cent.

Tobias Preis, Associate Professor of Behavioural Science and Finance at Warwick Business School, Doctor Suzy Moat, of University College London, and Doctor Gene Stanley, of Boston University, found that using these changes in search volume as the basis of a trading strategy investing in the Dow Jones Industrial Average Index could have led to substantial profit.

 

The team of academics showed 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 per cent.
Doctor Preis 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.'
The research supports the idea that drops in the financial market may be preceded by periods of investor concern.
Investors may search for more information about the market before they are prepared to sell at lower prices.
However, the researchers found that drops in interest in financial topics could be used as a signal for subsequent stock market rises.

One of Google's vast data centers in Douglas Country, Georgia. Experts have turned the giants search system on the stock market, - and say it CAN predict stock moves

Doctor Moat said: 'Analysis of Google Trends data may offer a new perspective on the decision making processes of market participants during periods of large market movements.

'It's exciting to see that online search data may give us new insight into how humans gather information before making decisions - a process which was previously very difficult to measure.'
Dr Preis added: 'We are generating gigantic amounts of data through our everyday interactions with technology.
This is opening up fascinating new possibilities for a new interdisciplinary 'computational social science''.
The findings were published in Nature Publishing Group's journal Scientific Reports.