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Friday, April 26, 2013

Google Search Terms Can Predict Stock Market, Study Finds

The terms people search for on Google have been used to forecast how many Americans have the flu, travel plans and the price for which cars sell. Now a scientific study shows that Google search can be used to predict the stock market.

Using Google Trends, a service that shows the popularity of search terms, researchers from Warwick Business School in England and Boston University’s department of physics found that the type of terms people search Google for on a given week can predict whether the Dow Jones industrial average will rise or fall the following week.

The study, titled “Quantifying Trading Behavior in Financial Markets Using Google Trends,” was published Thursday in Nature’s Scientific Reports.

The researchers tracked 98 search terms from Google Trends between 2004 and 2011. These included investment-related words, like debt, stocks, portfolio, unemployment and markets, and non-investment terms, including lifestyle, arts, happy, war, conflict and politics.

One of the leading search terms used to predict the markets was the word “debt” â€" an increase in such searches heralded a sell-off of stocks. A decrease in searches found the market rose slightly the following week.

But the results do not take into account volatile markets where a big sell-off can force investors to abandon ship sooner than they anticipated.

And sometimes Google Trends can give scientists inaccurate information when the proper context is not applied. For example, earlier this year Google Flu Trends said it believed that nearly 11 percent of the United States population had influenza. Yet the Centers for Disease Control and Prevention put the coughing and sniffling peak at 6 percent of the population. It turns out Google didn’t anticipate how outside influences, like media coverage of the flu and the rise in discussions on social media, would affect its data and statistics.

In 2010, researchers at Indiana University-Bloomington performed a similar study and found that people’s emotions on Twitter could help predict the stock market.