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Google Internet search activity and volatility prediction in the market for foreign currency

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  • Smith, Geoffrey Peter
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    Abstract

    I study whether evolution in the number of Google Internet searches for particular keywords can predict volatility in the market for foreign currency. I find that data on Google searches for the keywords economic crisis+financial crisis and recession has incremental predictive power beyond the GARCH(1,1). These results support the mixture of distributions hypothesis in that volatility is linked to the stochastic rate at which information flows into the marketplace. These results also demonstrate the potential for Google to become a storehouse of information for financial markets.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1544612312000189
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    Bibliographic Info

    Article provided by Elsevier in its journal Finance Research Letters.

    Volume (Year): 9 (2012)
    Issue (Month): 2 ()
    Pages: 103-110

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    Handle: RePEc:eee:finlet:v:9:y:2012:i:2:p:103-110

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    Web page: http://www.elsevier.com/locate/frl

    Related research

    Keywords: Google insights for Search; ARCH (GARCH); Mixture of distributions hypothesis (MDH); Foreign currency; Foreign exchange;

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    References

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    Cited by:
    1. Francisca Beer & Fabrice Hervé & Mohamed Zouaoui, 2013. "Is Big Brother Watching Us? Google, Investor Sentiment and the Stock Market," Economics Bulletin, AccessEcon, vol. 33(1), pages 454-466.
    2. Theologos Dergiades & Costas Milas & Theodore Panagiotidis, 2013. "Tweets, Google trends and sovereign spreads in the GIIPS," LSE Research Online Documents on Economics 54405, London School of Economics and Political Science, LSE Library.
    3. Sofía B. Ramos & Helena Veiga & Pedro Latoeiro, 2013. "Predictability of stock market activity using Google search queries," Statistics and Econometrics Working Papers ws130605, Universidad Carlos III, Departamento de Estadística y Econometría.
    4. Gao, Lei & Mei, Bin, 2013. "Investor attention and abnormal performance of timberland investments in the United States," Forest Policy and Economics, Elsevier, vol. 28(C), pages 60-65.

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