Google search based sentiment indexes

Abstract

This study sought to confirm whether Internet search based data have the potential both to reveal populations’ underlying beliefs directly and to affect stock markets of countries – in this case, Portugal. Based on the Internet search volume of several queries related to household concerns, we constructed two Google-based sentiment measures – a Positive Sentiment Index and a Negative Sentiment Index – encompassing both positive and negative search terms. The results reveal that both measures are correlated with aggregate stock market returns, trading volume, and abnormal trading volume. Also, positive sentiment has a stronger impact on these stock market variables than negative sentiment. Further, the proposed sentiment measures are significantly useful when making short-term predictions of market returns and volume.