It's been said that Google searches can help predict such things as the spread of flu or even the side effects of medicine before doctors get wise to them, thanks to the way people tend to "self-diagnose" via the Internet.
A new study shows just how strong Google predictions can be when it comes to something even more fickle than viruses and medication. It turns out Google searches can also be a pretty good bellwether for how the stock market is going to run in the near future.
Tobias Preis, a researcher at the University of Warwick Business School, and his colleagues have been hard at work determining whether or not there's a relationship between the number of times a stock is bought and sold versus the number of times the company's name has been looked up on Google.
According to LiveScience, though, the methodology behind Preis' and his colleagues' work was not useful in gaining knowledge about stock prices.
Preis and his team have now decided to widen their research to encompass more vague search trends via Google Trends. The team of researchers looked into such general financial-related terms as "crisis" and "debt" between the years of 2004 and 2011 in order to determine how these searches stacked up against the closing prices of the Dow Jones Industrial Average.
"If people get anxious about the stock market, they will likely seek out information on financial issues before trying to dump their stock," LiveScience says in its analysis of Preis' study. "Thus, finance-related Google searches should go up before a stock market decline."
What the researchers discovered was both astonishing and, after going through such search comparisons, surprisingly predictable. Higher Google searches on financial terms did reliably predict stock prices falling.
The word "debt" was the most reliable Google search that aided in predicting stock prices falling, the researchers found.
"Trends to sell on the financial market at lower prices may be preceded by periods of concern," the researchers say in their study published on Thursday, April 25 in journal Scientific Reports. "During such periods of concern, people may tend to gather more information about the state of the market. It is conceivable that such behavior may have historically been reflected by increased Google Trends search volumes for terms of higher financial relevance."
Preis (not to mention iTechPost.com) advises that anyone interested in trying to employ this process of stock investment should be extremely cautious and properly educate themselves first. Stock markets — which are notoriously nebulous — tend to adapt quickly to these kinds of "strategies," particularly as more people try to utilize the strategy, it will decrease the overall effect.
On a scientific level, however, Preis feels these findings are "truly exciting," especially as the study could have larger implications than those simply in relation to the stock market.
According to Preis, other trends in society that Google searches could be used to help predict include:
- Disease spread
- Civil unrest
- Political elections
Google searches are only one Internet determinate for these kinds of components of our world, as well, with Preis pointing to searches on Wikipedia and similar platforms as possibly being useful portents, as well.
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