A
rise in Google searches for terms relating to business and politics
can predict a future stock market crash, researchers have claimed. A
team of researchers from Warwick Business School in the UK and Boston
University in the US has developed a method to automatically identify
topics that people search for on Google before subsequent stock
market falls. Applied to data between 2004 and 2012, the method shows
that increases in searches for business and politics preceded falls
in the stock market. The researchers suggest that this method could
be applied to help identify warning signs in search data before a
range of real world events. "Search engines, such as Google,
record almost everything we search for," said Chester Curme,
Research Fellow at Warwick Business School and lead author of the
study. "Records of these search queries allow us to learn about
how people gather information online before making decisions in the
real world. So there's potential to use these search data to
anticipate what large groups of people may do," Curme said. In
previous studies, Curme and his colleagues, Tobias Preis and Suzy
Moat of Warwick Business School, and H Eugene Stanley of Boston
University, have demonstrated that usage data from Google and
Wikipedia may contain early warning signs of stock market moves.
However, these findings relied on the researchers choosing an
appropriate set of keywords, in particular those related to finance.
In order to enable algorithms to automatically identify patterns in
search activity that might be related to subsequent real world
behaviour, the team quantified the meaning of every single word on
Wikipedia. This allowed the researchers to categorise words into
topics, so that a "business" topic may contain words such
as "business", "management", and "bank".
The algorithm identified a broad selection of topics, ranging from
food to architecture to cricket. The team then used Google Trends to
see how often each week thousands of these words were searched for by
Internet users in the US between 2004 and 2012. Researchers found
that changes in how often users searched for terms relating to
business and politics could be connected to subsequent stock market
moves. "By mining these datasets, we were able to identify a
historic link between rises in searches for terms for both business
and politics, and a subsequent fall in stock market prices,"
said Moat. "Our results are in line with the hypothesis that
increases in searches relating to both politics and business could be
a sign of concern about the state of the economy, which may lead to
decreased confidence in the value of stocks, resulting in
transactions at lower prices," Moat added. The study was
published in the Proceedings of the National Academy of Sciences.
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