Study: Are Google Searches Affecting the Stock Market?

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A joint study by academics in Germany and the U.S. sheds new — and disturbing — light on the power of Google.

Published today in the latest issue of Philosophical Transactions of the Royal Society A, a bimonthly journal devoted to mathematical, physical and engineering sciences, the study, “Complex dynamics of our economic life on different scales: insights from search engine query data”, reveals a correlation between Google searches and financial market fluctuations.

That may not seem terribly surprising. If a company surges or totters, the volume of trades in its shares increases in lockstep with the volume of searches for the company’s name. But the study not only sheds light on the workings of financial markets but highlights just how much search engines such as Google learn about us every time we use them.

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“We asked the question whether or not there is a link between search volume data and financial market fluctuations on a weekly time scale”, says lead researcher Dr. Tobias Preis of the Johannes Gutenberg University in Mainz. This involved comparing data from Google Trends, Google’s weekly aggregated information on search terms, with the weekly information available on the S&P 500 index of the stocks traded in the U.S. The evocatively monikered Preis (his name means price in German) and his fellow authors Daniel Reith, also at Mainz, and H. Eugene Stanley at Boston University found no correlation between the number of Google searches relating to a company and the pricing of its shares.

There was, however, a direct mirroring of activity in terms of numbers of transactions and numbers of searches. That, says Preis, gives a signal about the “attractiveness of trading” a stock and that effect lasts for several weeks. In other words, anyone watching Google Trends and spotting an increased volume of searches of one company could assume that the stock would continue to be traded at high volume for some time.

This is a source of market intelligence, but the potency of the aggregated information is nothing compared to the detailed information gleaned by Google and other search engines. “The main point is that you can connect this kind of data, the network of financial traders and the data of ordinary people using search engines,” says Preis. He is concerned by the “hidden transfer of information” to Google in the traces left by each search. “They have this information on individuals and individual transactions and can link this to individual IP addresses. The very important and very crucial question is how they handle this information.”

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