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Can a Search Query Predict Stock Markets?

11.02.2011
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According to a new paper from the Institute of Complex Systems in Rome, a volume of Yahoo search queries related to companies on the NASDAQ-100 were correlated with the volumes of trades in those same companies in the following days. Here's the abstract:

A recent important discovery is that query volumes (i.e., the number of requests submitted by users to search engines on the www) can be used to track and, in some cases, to anticipate the dynamics of social phenomena. Successful exemples include unemployment levels, car and home sales, and epidemics spreading. Few recent works applied this approach to stock prices and market sentiment. However, it remains unclear if trends in financial markets can be anticipated by the collective wisdom of on-line users on the web. Here we show that trading volumes of stocks traded in NASDAQ-100 are correlated with the volumes of queries related to the same stocks. In particular, query volumes anticipate in many cases peaks of trading by one day or more. Our analysis is carried out on a unique dataset of queries, submitted to an important web search engine, which enable us to investigate also the user behavior. We show that the query volume dynamics emerges from the collective but seemingly uncoordinated activity of many users. These findings contribute to the debate on the identification of early warnings of financial systemic risk, based on the activity of users of the www.

The effect is curious since it emerges from the aggregate activity of many non-experts.  So it looks like they might be on their way to a powerful insight tool, but more research will of course be needed to show whether or not this is just chance.  It probably serves as decent evidence that search developers and analysts could make themselves very rich :)

You can find the PDF download here.