Investor Attention: Can Google Search Volumes Predict Stock Returns?

Claudia Yoshinaga,Fabio Rocco

doi:10.15728/bbr.2020.17.5.3

Abstract

This paper investigates the role of investor attention in predicting future stock market returns for Brazilian stocks using Google Search Volume (GSV). We tested whether lagged variations in GSV are followed by changes in excess returns by testing 57 stocks from the Ibovespa using weekly search data from Google Brazil from 2014 to 2018. Similar to previous research on the U.S. market, we found that increases in GSV are followed by lower excess returns. Additionally, we show that the more traded a stock is, the higher the effect. This is consistent with the hypothesis that higher individual investor attention leads to lower subsequent returns, suggesting that increasing popularity causes stock prices to deviate from their fundamental value.

Highlights

Many studies show that grabbing investor attention has an important impact on financial market characteristics, including liquidity, diversity of ownership (Grullon, Kanatas, & Weston, 2004), returns (Barber & Odean, 2007) and volatility (Andrei & Hasler, 2014)
Our purpose in this paper is to evaluate whether Google Search Volume (GSV) can predict stock returns in the Brazilian stock market
The main motivation of this paper is to examine investor attention and its impact on stock returns in the Brazilian stock market; this information is currently missing in the literature

Summary

Introduction

Many studies show that grabbing investor attention has an important impact on financial market characteristics, including liquidity, diversity of ownership (Grullon, Kanatas, & Weston, 2004), returns (Barber & Odean, 2007) and volatility (Andrei & Hasler, 2014). A quote commonly attributed to Joseph Kennedy from just before the Wall Street crash of 1929 links the popularity of stocks to predictable returns: “You know it’s time to sell when the shoeshine boys give you stock tips”. His point was that the increased popularity of stocks to the point where they are being traded by inexperienced investors supposedly indicates their imminent price decrease. If one can predict the impact of an increase or decrease in investor attention on future performance, successful trades can explore this market anomaly

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