Google search trends and stock markets: Sentiment, attention or uncertainty?

Jan Jakub Szczygielski, Ailie Charteris, Princess Rutendo Bwanya, Janusz Brzeszczyński*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)
96 Downloads (Pure)

Abstract

Keyword-based measures purporting to reflect investor sentiment, attention or uncertainty have increasingly been used to model stock market behaviour. We investigate and shed light on the narrative reflected by Google search trends (GST) by constructing a neutral and general stock market-related GST index. To do so, we apply elastic net regression to select investor relevant search terms using a sample of 77 international stock markets. The index peaks around significant events that impacted global financial markets, moves closely with established measures of market uncertainty and it is predominantly correlated with uncertainty measures in differences, implying that GST reflect an uncertainty narrative. Returns and volatility for developed, emerging and frontier markets widely reflect changing Google search volumes and relationships conform to a priori expectations associated with uncertainty. Our index performs well relative to existing keyword-based uncertainty measures in its ability to approximate and predict systematic stock market drivers and factor dispersion underlying return volatility both in-sample and out-of-sample. Our study contributes to the understanding of the information reflected by GST, their relationship with stock markets and points towards generalisability, thus facilitating the development of further applications using internet search data.

Original languageEnglish
Article number102549
Number of pages27
JournalInternational Review of Financial Analysis
Volume91
Early online date31 Jan 2023
DOIs
Publication statusPublished - 1 Jan 2024

Keywords

  • Attention
  • Elastic net regression
  • Google search trends
  • Machine learning
  • Market uncertainty
  • Returns
  • Sentiment
  • Volatility

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