Google Trends and Stocks: Retail Investing's Effect on Trading Performance of Swedish Large Cap Stocks

Abstract: We elaborate on the measure of retail investor attention by assessing search frequency in Google Trends. Search Volume Index (SVI) is explored as a proxy for attention that stocks get from retail investors, and we discuss its explanatory power on stock metrics. Our findings conclude a slight but distinct positive relationship between Google searches and stock metrics in terms of price changes, trading volume changes, and volatility changes on a 10-day rolling basis in Stockholm-listed Large Cap stocks. More particularly, SVI increases in company name searches show the strongest relationship in predicting the following week's stock movements in the tested parameters. Furthermore, the paper concludes that there are indeed industry differences in these effects within the tested stocks, where we see more evident results for Communication, Tech, Material, and Medical sectors for one-week lagged regressions. Our main addition to the existing research is the exploration of effects in Swedish markets as well as the contribution of more recent data. It also explores retail investor attention measures by discovering the dynamics in search method differences. When Google searches for the stock increases, it explains the variance better for all metrics. In contrast, when searches for the company increase, that is not necessarily the stock, it more accurately predicts the coefficient in the parameters tested.