Using Google Trends To Predict Stocks

Jul. 28, 2018 6:53 AM ETSPY, XLP, XLY5 Comments
Harrison Schwartz profile picture
Harrison Schwartz


  • Google Trends allows analysts to see how often certain terms are searched.
  • By analyzing bullish and bearish term search volume, we can construct an investor sentiment index.
  • This "Google Trends" investor sentiment index appears to predict consumer sector outperformance.
  • Google Trends data is an exciting frontier in investment research we will continue to develop in.

For those of you who have not heard of Google Trends, it is a tool produced by Alphabet/Google (GOOG) (GOOGL) that allows users to see search volume and geographic search concentration for a wide range of keywords. It is most often used to see whether Kim Kardashian or Taylor Swift is trending more, but we believe it has great use for active investors and research analysts.

We hypothesize that retail investor sentiment is correlated to Google search volume. When more users search for keywords such as "stocks to buy", risk-on stocks should outperform risk-off stocks. When users search terms such as "how to short sell", it is a signal more retail investors are becoming worried and that risk-off stocks should outperform.

Measuring Bullish vs. Bearish Sentiment

When a new investor enters the market, it often begins with a Google search of "what stocks to buy" or "top stocks". Often such investors are responding to the market itself; their friend touts about how much money they recently made in the market and said new investor takes to Google. Doing so will lead to a few sources on "how to invest" and a few stock tips; and, a week or two later they will buy stocks.

Here is the monthly data we collected on these keywords since 2004:

Source: Google Trends

As you can see, there are large spikes both during sharp market rallies as in January of this year and during large sell-offs as in 2008. To create a more accurate "google search sentiment" index, we will gather the same data for the bearish side of Google search volume.

When investors become worried, they will often search "sell stocks", "how to short sell" and "how to sell stocks". Here is the same as above for these "bearish" search requests:

Source: Google

This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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