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

  • Smith, Geoffrey Peter
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    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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    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
    Contact details of provider: Web page: http://www.elsevier.com/locate/frl

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