Does Google Search Data Provide Information About Current and Future Stock Behaviour? - A study on how Google searches relate to stock returns, liquidity and volatility

Abstract: This study investigates the relation between Google searches and current and future stock behaviour. Google Inc. provides a service named Google Trends which makes collection of Google search frequency data possible. With respect to this data, an Abnormal Search Volume Index (ASVI) was defined, and its relation with abnormal returns, abnormal liquidity and abnormal volatility was studied. Furthermore, to broaden previous research, a larger number of companies was used, including companies listed on S&P 500 and S&P 350 Europe. Moreover, potential geographical differences were examined, and both ticker name and company name as search queries were used. It was found that current high values of ASVI correlate positively with all dependent variables, except for abnormal returns for European stocks. This suggests that Internet usage is different when investors study European and American stocks. Furthermore, lagged dependent variables were incorporated. The results varied, but with regards to abnormal returns, it was found that, following high values of ASVI, the abnormal returns correlate negatively, thus confirming the theory of sentiment-induced mispricing.