Google Search Intensity and Its Relationship with Returns and Trading Volume of Japanese Stocks

Abstract

This paper examines the relationship between online search intensity and stock-trading behavior in the Japanese market. The search intensity is measured by the search volume of company names on Google, which is expected to be related to the aggregate stock purchasing behavior of individual investors. Our sample consists of 189 stocks included in the Nikkei 225 and searched between 2008 and 2011. We find correlations with search intensity that are strongly positive for trading volume and weakly positive for stock returns. Our results are consistent with the notion that the increase of search activity is associated with increases of trading activity, but the probability that this increase of trading raises stock prices is not high, probably because of the fact that our sample period includes major negative economic shocks such as the 2008 world financial crisis and the 2011 Great East Japan Earthquake; also, the presence of individual investors, whose online search activity is expected to be well-associated with stock trading, is smaller in Japan than in the U.S.