Google Searches, Prediction, and Fabulous Stock Market Returns?
July 28, 2014
I read “Google Searches Hold Key to Future Market Crashes.” The main idea in my opinion is:
Moat [female big thinker at Warwick Business School’ continued, “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.”
So will the Warwick team cash in on the stock market?
Well, there is a cautionary item as well:
“Our results provide evidence of a relationship between the search behavior of Google users and stock market movements,” said Tobias Preis, Associate Professor of Behavioral Science and Finance at Warwick Business School. “However, our analysis found that the strength of this relationship, using this very simple weekly trading strategy, has diminished in recent years. This potentially reflects the increasing incorporation of Internet data into automated trading strategies, and highlights that more advanced strategies are now needed to fully exploit online data in financial trading.”
Rats. Quants are already on this it seems.
What’s fascinating to me is that the Warwick experts overlooked a couple of points; namely:
- Google is using its own predictive methods to determine what users see when they get a search result based on the behavior of others. Recursion, anyone?
- Google provides more searches with each passing day to those using mobile devices. By their nature, traditional desktop queries are not exactly the same as mobile device searches. As a workaround, Google uses clusters and other methods to give users what Google thinks the user really wants. Advertising, anyone?
- The stock pickers that are the cat’s pajamas at the B school have to demonstrate their acumen on the trading floor. Does insider trading play a role? Does working at a Goldman Sachs-type of firm help a bit?
Like perpetual motion, folks will keep looking for a way to get an edge. Why are large international banks paying some hefty fines? Humans, I believe, not algorithms.
Stephen E Arnold, July 28, 2014
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