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Predictability of stock market activity using Google search queries

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  • Sofía B. Ramos

    ()

  • Helena Veiga

    ()

  • Pedro Latoeiro

Abstract

This paper analyzes whether web search queries predict stock market activity in a sample of the largest European stocks. We provide evidence that i) an increase in web searches for stocks on Google engine is followed by a temporary increase in volatility and volume and a drop in cumulative returns. ii) An increase for web search queries for the market index leads to a decrease in the returns of the index as well as of the stock index futures and an increase in implied volatility. iii) Attention interacts with behavioral biases. The predictability of web searches for return and liquidity is enhanced when firm prices and market prices hit a 52-week high and diminished when the market hits a 52-week low. iv) Investors tend to process more market information than firm specific information in investment decisions, confirming limited attention theory.

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Estadística y Econometría in its series Statistics and Econometrics Working Papers with number ws130605.

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Date of creation: Mar 2013
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Handle: RePEc:cte:wsrepe:ws130605

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Keywords: Behavioral Finance; Google Search Volume Index; Investor Attention; Predictability;

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Cited by:
  1. Aouadi, Amal & Arouri, Mohamed & Teulon, Frédéric, 2013. "Investor attention and stock market activity: Evidence from France," Economic Modelling, Elsevier, vol. 35(C), pages 674-681.

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