How Google searches can warn about stock market crashes

A new research has come up with a method that automatically identifies the warning signs on search data on Google before subsequent stock market crashes.

The research conducted by a team of researchers from Warwick Business School and Boston University shows that increases in searches for business and politics preceded falls in the stock market.

Chester Curme, Research Fellow at Warwick Business School and lead author of the study said that search engines, such as Google, recorded almost everything they searched for and records of these search queries allowed them to learn about how people collected information online before making decisions in the real world.

Suzy Moat, Assistant Professor of Behavioural Science at Warwick Business School said that by mining these datasets, they 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 as well.

Moat continued that their results were in line with the hypothesis that increased 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.

Tobias Preis, Associate Professor of Behavioural Science and Finance at Warwick Business School asserted that their results provided evidence of a relationship between the search behaviour of Google users and stock market movements.

The study is published in the Proceedings of the National Academy of Sciences.