Do Politics-Themed Google Searches Predict Stock Activity?

Wondering if the market is in for a tumble? If you find yourself Googling a lot of political and financial terms, it may well be.

Harry Campbell

In the past, trends in Google GOOGL -1.03% searching have been shown to predict flu outbreaks, unemployment rates and the success of movies at the box office. There was even evidence that financially oriented searches—of Google and Wikipedia—could predict stock market movements.

The pattern was simple: Before stocks moved lower, there was an uptick in searches of finance-related terms. Now researchers from Boston University and the University of Warwick, in England, are reporting that stepped-up searching for terms relating to politics also points to a lower market.

Building on their previous work, the scientists used the techniques of computational linguistics to group all the words in Wikipedia into topics. Then, using Google Trends, a publicly available service, they determined how often salient keywords within each topic area were searched from 2004 to 2012. The result? Increased searching of finance or political terms predicted falling stocks.

The scientists used their keyword searches to make hypothetical trades based on historical data for the S&P 500 index. For each keyword topic, they bought or sold the index weekly depending on whether searches were rising or falling, comparing their results to a strategy of buying and selling randomly each week. The median return for trading based on a collection of politics keywords was 38% above the random strategy. For business-oriented keywords, it was 28%. "http://online.wsj.com/articles/do-politics-themed-google-searches-predict-stock-activity-1406938584?google_editors_picks=true