London, England, United Kingdom (4E) – Researchers have found that a rise in Google searches for political and business terms is followed by a devaluation of stocks.
Searches for the said terms are driven by concerns about the state of the economy and may lead to decreased confidence in the value of stocks resulting in transactions at lower prices, according to the 2013 study titled “Quantifying the semantics of search behavior before stock market moves” and done by Warwick Business School of Coventry, United Kingdom.
The researchers based their finding on an analysis of historic data from 2004 until 2012.
“If people are uncertain about what’s going on then they’re going to go and look for more information about it all. That’s what drives the rise in searches on matters business and financial and it’s that very uncertainty that drives the subsequent fall,” explained Forbes.com contributor Tim Worstall.
Politics affects stock markets. The MSCI Emerging Markets Index lost 0.4 percent to 1,046.55, for a 1.3 percent retreat in the week as U.S. fighter jets bombed mobile artillery of Islamic militants in Iraq. The weekly loss was triggered by concern that the worsening crisis in Iraq will thwart the global recovery.
“Geopolitics is weighing on the market, making investors more cautious,” Neil Shearing, the chief emerging-markets economist at Capital Economics, said by phone from London, according to Bloomberg.
Historically, geopolitics affects stock markets. On March 3, 2014, a Monday, the Dow Jones Industrial Average fell 226 points or 1.4 percent to 16,094 amid the tensions between Russia and Ukraine. Russian stocks were worst hit as the Market Vectors Russia ETF Trust or RSX dropped 9 percent to $22.25, on more than three times its average daily trading volume, according to FactSet.
Last year, Sam Stovall, chief equity strategist at S&P Capital IQ, conducted a broad study of how U.S. stocks reacted to wars, near wars, assassinations, assassination attempts, terrorist attacks and financial collapses since World War II. Stovall found that stocks initially sold off, but then didn’t take long to rebound and recover those losses. The selloff followed by a rebound happened during the August 2008 Russia-Georgia War.
When the war broke out on Aug. 7, 2008, the S&P 500 dropped 1.8 percent. But the next day, losses were regained and trading increased for the next month.
Last summer, when Syria reportedly used chemical weapons, the S&P 500 slumped 3.1 percent in August before rallying 3.8 percent and finished the year up 30 percent at a record high.
Google’s ability to predict events had been proven in the field of entertainment and medicine. Popular films or albums had more searches before their release that Google can predict with 94 per cent accuracy, whether a film would be a box office success before it hit cinemas.
“The number of searches for movie trailers in the four weeks before a film premieres can be used to determine opening weekend revenue,” the Sydney Morning Herald quoted Google Media and Entertainment representative, Andrea Chen, as saying.
Also, a rise in searches for flu symptoms is followed by a rise in flu infections.
While Google trends prove to be a good tool for deciding to buy or sell stocks, it should still be supplemented with investor education like InvestView.
InvestView is a subscription-based financial education courses that include search tools and trading indicators, weekly newsletters as well as access to live weekly Trading Rooms. Available at Investview.com, the courses are offered via live webinar and as a recorded on-demand videos that is immediately posted at the end of each webinar.
Red Bank, New Jersey-based investment education company InvestView (OTCQB: INVU) developed the innovative platform.