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Is Big Brother Watching Us? Google, Investor Sentiment and the Stock Market

Author

Listed:
  • Francisca Beer

    () (California State University, San Bernardino)

  • Fabrice Hervé

    () (University of Burgundy, France)

  • Mohamed Zouaoui

    () (University of Burgundy, France)

Abstract

This paper proposes a novel measure of French investor sentiment based on the volume of internet search reported by Google Trends. We find that our sentiment indicator correlates well with alternative sentiment measures often used in the literature. Furthermore, we find that investor sentiment influences the behavior of mutual fund investors. The results also reveal evidence about short-run predictability in return. An increase in our sentiment index leads to short-term return reversal. The reversal pattern is more pronounced for smaller firms than larger firms, consistent with the predictions of noise trader's models.

Suggested Citation

  • 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.
  • Handle: RePEc:ebl:ecbull:eb-13-00050
    as

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    References listed on IDEAS

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    1. David Hirshleifer & Tyler Shumway, 2003. "Good Day Sunshine: Stock Returns and the Weather," Journal of Finance, American Finance Association, vol. 58(3), pages 1009-1032, June.
    2. Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, August.
    3. Smith, Geoffrey Peter, 2012. "Google Internet search activity and volatility prediction in the market for foreign currency," Finance Research Letters, Elsevier, vol. 9(2), pages 103-110.
    4. Shan, Liwei & Gong, Stephen X., 2012. "Investor sentiment and stock returns: Wenchuan Earthquake," Finance Research Letters, Elsevier, vol. 9(1), pages 36-47.
    5. Michael S. Drake & Darren T. Roulstone & Jacob R. Thornock, 2012. "Investor Information Demand: Evidence from Google Searches Around Earnings Announcements," Journal of Accounting Research, Wiley Blackwell, vol. 50(4), pages 1001-1040, September.
    6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    7. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    8. McLaren, Nick & Shanbhogue, Rachana, 2011. "Using internet search data as economic indicators," Bank of England Quarterly Bulletin, Bank of England, vol. 51(2), pages 134-140.
    9. Brown, Gregory W. & Cliff, Michael T., 2004. "Investor sentiment and the near-term stock market," Journal of Empirical Finance, Elsevier, vol. 11(1), pages 1-27, January.
    10. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    11. Ben-Rephael, Azi & Kandel, Shmuel & Wohl, Avi, 2012. "Measuring investor sentiment with mutual fund flows," Journal of Financial Economics, Elsevier, vol. 104(2), pages 363-382.
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    Citations

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    Cited by:

    1. Ana Brochado, 2016. "Retail Investor Sentiment: Can We Google It?," EcoMod2016 9341, EcoMod.
    2. Frugier, Alain, 2016. "Returns, volatility and investor sentiment: Evidence from European stock markets," Research in International Business and Finance, Elsevier, vol. 38(C), pages 45-55.
    3. Stephen L. France & Yuying Shi, 2017. "Aggregating Google Trends: Multivariate Testing and Analysis," Papers 1712.03152, arXiv.org, revised Mar 2018.

    More about this item

    Keywords

    Google Trends; Investor sentiment; VAR model; Stock returns;

    JEL classification:

    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets

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