Google can tell us some interesting things about humanity. And some of those things can make data crunchers very wealthy.
If you want to get a glimpse into the collective mentality of the human race, consult a search engine. Search engine query data (i.e. what people type into search engines) serves as a real-time indicator of the demand for information across a variety of subject matter. What people are searching for is tightly tied to societal and economic trends.
As an example, if you start typing into the Google search bar and the search engine will offer up suggestions based on what others are searching (like you’ll see in the image below).
The results can sometimes be hilarious and sometimes be horrifying but are almost always interesting.
But if you dive deeper, you’ll find that there’s more interesting and meaningful data available. For instance, here’s a Google Trends graph displaying interest in “gas mileage” over the past nine years. You’ll see a surge in interest in the summer of 2008, when gas prices were at a record high.
It makes sense, of course. As prices for gas surged, more people were interested in getting better gas mileage. This is the type of logic researchers are applying to the world of finance. It all centers around understanding how human interest can be correlated with larger market trends.
Recently, researchers have found that the treasure trove of data found in Google’s search trends can predict ebbs and flows in the stock market.
From BBC: The volume of Google searches for finance-related terms may predict moves in markets, research suggests.
As the search volume on generic terms such as “debt”, “portfolio” and “stocks” fell, the Dow Jones average tended to go up – and vice versa.
An investment strategy based on these search volume data between 2004 and 2011 would have made a profit of 326%. [A] new report (Quantifying Trading Behavior in Financial Markets Using Google Trends) gives hints that straightforward analysis of interest in general finance-related terms can be a good predictor of overall market health.
“We were intrigued by the idea that stock market data serves as a really large record of all the actions people take in the stock market, but don’t necessarily tell us much about how people decided to take those actions,” said Suzy Moat of University College London, co-author of the paper.
“We wondered whether by looking at Google, we could get some insight into some early information-gathering stages of how people make decisions,” she told BBC News.
The team started with a set of 98 search terms and tracked how search volumes on those terms varied over a period between 2004 and 2011, and correlated those with the Dow Jones Industrial Average.
Generally, searches for the most finance-focused terms such as “stocks” and “revenue” went down before rises in that market average, whereas when those terms were searched for more often, the average tended to fall in subsequent weeks.
The team developed a hypothetical investment strategy through the period, buying notional stocks in weeks that financial-term search volume fell, and selling them when volume rose – a strategy that would have gained them a profit of 326%. By comparison, simply buying in 2004 and selling in 2011 would have yielded a profit of 16%
Google serves results for about 100 billion searches per month. We’re only starting to understand what we can learn about society and the economy along the way.