Thursday, April 25, 2013

Google predicts market crash: Trends data could forecast stock movement

Google predicts market crash: Trends data could forecast stock movement, It was reported on April 25, 2013, that Google Trends data could predict the next stock market crash by TheStreet.com.

Google Trends search query volume data from January 2004 through February 2011 was analyzed to product the report. A total of 98 terms were found and studied. It was determined that declining search volume in those terms preceded an increase in price of the Dow Jones Industrial Average (DJIA).

According to the report, "Our trading strategy can be decomposed into two strategy components: one in which a decrease in search volume prompts us to buy (or take a long position) and one in which an increase in search volume prompts us to sell (or take a short position)."

The original study was published today in Scientific Reports, hosted on Nature.com. In the report the researchers share their trading strategy and the search terms that helped them to make that determination.

"We implement Google Trends strategies in which we take long positions following a decrease in search volume, and never take short positions. We find that returns from these long position Google Trends strategies are significantly higher overall than returns from the random investment strategies."

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