Published on the 26/04/2013 | Written by Newsdesk

Academics from the UK and US have analysed historic Google Trends data for changes in the frequency of 98 finance-related terms, revealing patterns that could be interpreted as early-warning signs of stock market moves.

The study, which looked at search terms in Google searches from 2004 to 2011, was developed as part of the US Government’s Intelligence Advanced Research Projects Activity (IARPA) Open Source Indicators program that aims to develop methods for continuous, automated analysis of publicly available data in order to anticipate significant societal events.

Drs Tobias Preis, of Warwick Business School, Helen Susannah Moat, of University College London, and H. Eugene Stanley, of Boston University found that investors search for more financial information before a drop in the market – a symptom of investor concern. Conversely, they found that a reduction in interest in financial topics could be used as a signal for subsequent stock market rises.

In their paper, Quantifying Trading Behavior in Financial Markets, the team demonstrate that trading on the basis of the number of queries on Google using the keyword ‘debt’ could have brought in returns of up to 326 percent.

Dr Moat, based at University College London, said, “Analysis of Google Trends data may offer a new perspective on the decision making processes of market participants during periods of large market movements.

“It’s exciting to see that online search data may give us new insight into how humans gather information before making decisions – a process which was previously very difficult to measure.”

Dr Preis, Associate Professor of Behavioural Science at Warwick Business School added, “We are generating gigantic amounts of data through our everyday interactions with technology. This is opening up fascinating new possibilities for a new interdisciplinary ‘computational social science’.”