Can Google Trends search queries contribute to risk diversification?
AbstractPortfolio diversification and active risk management are essential parts of financial analysis which became even more crucial (and questioned) during and after the years of the Global Financial Crisis. We propose a novel approach to portfolio diversification using the information of searched items on Google Trends. The diversification is based on an idea that popularity of a stock measured by search queries is correlated with the stock riskiness. We penalize the popular stocks by assigning them lower portfolio weights and we bring forward the less popular, or peripheral, stocks to decrease the total riskiness of the portfolio. Our results indicate that such strategy dominates both the benchmark index and the uniformly weighted portfolio both in-sample and out-of-sample.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1310.1444.
Date of creation: Oct 2013
Date of revision:
Publication status: Published in Scientific Reports 3:2713, 2013
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-11 (All new papers)
- NEP-FOR-2013-10-11 (Forecasting)
- NEP-RMG-2013-10-11 (Risk Management)
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