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What makes stocks sensitive to investor sentiment: An analysis based on Google Trends

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  • Qureshi Adeel Ali

    (Department of Corporate Finance, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland)

Abstract

We capture Google’s vast search volume through Google Trends to generate a weekly investor sentiment index (2018–2022) using the most popular keywords (extracted from Google Search) from a keywords collection of 92,000+ words found in business, finance, and common language dictionaries. The results show that Google Trends is an efficient measure of investor sentiment as reflected in relative trading volume. To check what makes stocks sensitive to investor sentiment, 500 randomly selected US firms from various industries are categorised by firm characteristics. We generate two sub-portfolios: large, old, profitable, and dividend-yielding firms versus small, young, unprofitable, and non-dividend-yielding firms—and find the relative trading volume of the latter to be more sensitive to investor sentiment. Our results remain robust when control and auto regressive variables are introduced, in addition to when an alternative measure of sentiment is used, thereby confirming our primary findings.

Suggested Citation

  • Qureshi Adeel Ali, 2025. "What makes stocks sensitive to investor sentiment: An analysis based on Google Trends," Economics and Business Review, Sciendo, vol. 11(2), pages 39-65.
    • Handle: RePEc:vrs:ecobur:v:11:y:2025:i:2:p:39-65:n:1002
    DOI: 10.18559/ebr.2025.2.1790
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    References listed on IDEAS

    as
    1. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    2. Aboody, David & Even-Tov, Omri & Lehavy, Reuven & Trueman, Brett, 2018. "Overnight Returns and Firm-Specific Investor Sentiment," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 53(2), pages 485-505, April.
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    More about this item

    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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