IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v49y2020ics1386418120300136.html
   My bibliography  Save this article

Google search volume and individual investor trading

Author

Listed:
  • Kostopoulos, Dimitrios
  • Meyer, Steffen
  • Uhr, Charline

Abstract

We relate Google search volumes, which are a proxy for the economic concerns of households (the FEARS index), to the trading behavior of approximately 100,000 individual German online-brokerage clients. We find that when the FEARS index is high, individual investors trade out of risky assets. Additionally, we find that the FEARS index has a negative short-horizon relation to stock market returns, which reverses over the following six days. This shows that the effect of economic concerns on the market is temporary, whereas on individual investors, the effect does not reverse within the next 20 days. In addition, we find that less sophisticated investors are more prone to sentiment.

Suggested Citation

  • Kostopoulos, Dimitrios & Meyer, Steffen & Uhr, Charline, 2020. "Google search volume and individual investor trading," Journal of Financial Markets, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finmar:v:49:y:2020:i:c:s1386418120300136
    DOI: 10.1016/j.finmar.2020.100544
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386418120300136
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.finmar.2020.100544?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Daniel Dorn & Gur Huberman, 2005. "Talk and Action: What Individual Investors Say and What They Do," Review of Finance, Springer, vol. 9(4), pages 437-481, December.
    2. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2007. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 707-747, October.
    3. David Hirshleifer & Tyler Shumway, 2003. "Good Day Sunshine: Stock Returns and the Weather," Journal of Finance, American Finance Association, vol. 58(3), pages 1009-1032, June.
    4. Daniel Dorn & Gur Huberman & Paul Sengmueller, 2008. "Correlated Trading and Returns," Journal of Finance, American Finance Association, vol. 63(2), pages 885-920, April.
    5. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2009. "Measuring the Financial Sophistication of Households," American Economic Review, American Economic Association, vol. 99(2), pages 393-398, May.
    6. Malcolm Baker & Jeffrey Wurgler, 2006. "Investor Sentiment and the Cross‐Section of Stock Returns," Journal of Finance, American Finance Association, vol. 61(4), pages 1645-1680, August.
    7. Zoran Ivković & James Poterba & Scott Weisbenner, 2005. "Tax-Motivated Trading by Individual Investors," American Economic Review, American Economic Association, vol. 95(5), pages 1605-1630, December.
    8. Kaplanski, Guy & Levy, Haim, 2010. "Sentiment and stock prices: The case of aviation disasters," Journal of Financial Economics, Elsevier, vol. 95(2), pages 174-201, February.
    9. William N. Goetzmann & Alok Kumar, 2008. "Equity Portfolio Diversification," Review of Finance, European Finance Association, vol. 12(3), pages 433-463.
    10. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    11. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    12. Jochen M. Schmittmann & Jenny Pirschel & Steffen Meyer & Andreas Hackethal, 2015. "The Impact of Weather on German Retail Investors," Review of Finance, European Finance Association, vol. 19(3), pages 1143-1183.
    13. Falko Fecht & Andreas Hackethal & Yigitcan Karabulut, 2018. "Is Proprietary Trading Detrimental to Retail Investors?," Journal of Finance, American Finance Association, vol. 73(3), pages 1323-1361, June.
    14. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-738, August.
    15. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. "Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March.
    16. Diego García, 2013. "Sentiment during Recessions," Journal of Finance, American Finance Association, vol. 68(3), pages 1267-1300, June.
    17. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
    18. Mark J. Kamstra & Lisa A. Kramer & Maurice D. Levi, 2003. "Winter Blues: A SAD Stock Market Cycle," American Economic Review, American Economic Association, vol. 93(1), pages 324-343, March.
    19. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 261-292.
    20. Anna Bassi & Riccardo Colacito & Paolo Fulghieri, 2013. "'O Sole Mio: An Experimental Analysis of Weather and Risk Attitudes in Financial Decisions," The Review of Financial Studies, Society for Financial Studies, vol. 26(7), pages 1824-1852.
    21. Paul C. Tetlock & Maytal Saar‐Tsechansky & Sofus Macskassy, 2008. "More Than Words: Quantifying Language to Measure Firms' Fundamentals," Journal of Finance, American Finance Association, vol. 63(3), pages 1437-1467, June.
    22. Alex Edmans & Diego García & Øyvind Norli, 2007. "Sports Sentiment and Stock Returns," Journal of Finance, American Finance Association, vol. 62(4), pages 1967-1998, August.
    23. Amit Seru & Tyler Shumway & Noah Stoffman, 2010. "Learning by Trading," The Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 705-739, February.
    24. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    25. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    26. Paul C. Tetlock, 2007. "Giving Content to Investor Sentiment: The Role of Media in the Stock Market," Journal of Finance, American Finance Association, vol. 62(3), pages 1139-1168, June.
    27. Mark S. Seasholes & Ning Zhu, 2010. "Individual Investors and Local Bias," Journal of Finance, American Finance Association, vol. 65(5), pages 1987-2010, October.
    28. Kaustia, Markku & Rantapuska, Elias, 2016. "Does mood affect trading behavior?," Journal of Financial Markets, Elsevier, vol. 29(C), pages 1-26.
    29. Alok Kumar & Charles M.C. Lee, 2006. "Retail Investor Sentiment and Return Comovements," Journal of Finance, American Finance Association, vol. 61(5), pages 2451-2486, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carlini, Federico & Farina, Vincenzo & Gufler, Ivan & Previtali, Daniele, 2024. "Do stress and overstatement in the news affect the stock market? Evidence from COVID-19 news in The Wall Street Journal," International Review of Financial Analysis, Elsevier, vol. 93(C).
    2. Smales, L.A., 2021. "Investor attention and global market returns during the COVID-19 crisis," International Review of Financial Analysis, Elsevier, vol. 73(C).
    3. Ballinari, Daniele & Audrino, Francesco & Sigrist, Fabio, 2022. "When does attention matter? The effect of investor attention on stock market volatility around news releases," International Review of Financial Analysis, Elsevier, vol. 82(C).
    4. Desagre, Christophe & D’Hondt, Catherine, 2021. "Googlization and retail trading activity," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    5. Gabriele M. Lepori, 2021. "A nonrandom walk down Hollywood boulevard: Celebrity deaths and investor sentiment," The Financial Review, Eastern Finance Association, vol. 56(3), pages 591-613, August.
    6. Vera Z. Eichenauer & Ronald Indergand & Isabel Z. Martínez & Christoph Sax, 2022. "Obtaining consistent time series from Google Trends," Economic Inquiry, Western Economic Association International, vol. 60(2), pages 694-705, April.
    7. Kostopoulos, Dimitrios & Meyer, Steffen & Uhr, Charline, 2020. "Ambiguity and investor behavior," SAFE Working Paper Series 297, Leibniz Institute for Financial Research SAFE.
    8. Meyer, Steffen & Uhr, Charline, 2024. "Ambiguity and private investors’ behavior after forced fund liquidations," Journal of Financial Economics, Elsevier, vol. 156(C).
    9. Yuan, Hongmin & Ouyang, Yanmin & Li, Yuxiang, 2024. "Local earthquakes and households’ risk-taking: Evidence from the China Household Finance Survey," Journal of Asian Economics, Elsevier, vol. 91(C).
    10. Cheng, Feiyang & Wang, Chunfeng & Chiao, Chaoshin & Yao, Shouyu & Fang, Zhenming, 2021. "Retail attention, retail trades, and stock price crash risk," Emerging Markets Review, Elsevier, vol. 49(C).
    11. Chen, Zhongdong & Craig, Karen Ann, 2023. "Active attention, retail investor base, and stock returns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    12. de Castro, Jessica & Piccoli, Pedro, 2023. "Do online searches actually measure future retail investor trades?," International Review of Financial Analysis, Elsevier, vol. 86(C).
    13. Li, Yuze & Jiang, Shangrong & Li, Xuerong & Wang, Shouyang, 2021. "The role of news sentiment in oil futures returns and volatility forecasting: Data-decomposition based deep learning approach," Energy Economics, Elsevier, vol. 95(C).
    14. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Saleem, Owais & Adeoye, Habeeb A., 2022. "Asymmetric connectedness between Google-based investor attention and the fourth industrial revolution assets: The case of FinTech and Robotics & Artificial intelligence stocks," Technology in Society, Elsevier, vol. 68(C).
    15. Ahundjanov, Behzod B. & Akhundjanov, Sherzod B. & Okhunjanov, Botir B., 2021. "Risk perception and oil and gasoline markets under COVID-19," Journal of Economics and Business, Elsevier, vol. 115(C).
    16. Kostopoulos, Dimitrios & Meyer, Steffen & Uhr, Charline, 2022. "Ambiguity about volatility and investor behavior," Journal of Financial Economics, Elsevier, vol. 145(1), pages 277-296.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kostopoulos, Dimitrios & Meyer, Steffen, 2018. "Disentangling investor sentiment: Mood and household attitudes towards the economy," Journal of Economic Behavior & Organization, Elsevier, vol. 155(C), pages 28-78.
    2. Hwang, Byoung-Hyoun, 2011. "Country-specific sentiment and security prices," Journal of Financial Economics, Elsevier, vol. 100(2), pages 382-401, May.
    3. Edmans, Alex & Fernandez-Perez, Adrian & Garel, Alexandre & Indriawan, Ivan, 2022. "Music sentiment and stock returns around the world," Journal of Financial Economics, Elsevier, vol. 145(2), pages 234-254.
    4. Maximilian Koestner & Benjamin Loos & Steffen Meyer & Andreas Hackethal, 2017. "Do individual investors learn from their mistakes?," Journal of Business Economics, Springer, vol. 87(5), pages 669-703, July.
    5. Wang, Wenzhao & Duxbury, Darren, 2021. "Institutional investor sentiment and the mean-variance relationship: Global evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 415-441.
    6. Sun, Licheng & Najand, Mohammad & Shen, Jiancheng, 2016. "Stock return predictability and investor sentiment: A high-frequency perspective," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 147-164.
    7. Qadan, Mahmoud & Nama, Hazar, 2018. "Investor sentiment and the price of oil," Energy Economics, Elsevier, vol. 69(C), pages 42-58.
    8. Hoechle, Daniel & Schmid, Markus & Zimmermann, Heinz, 2012. "Decomposing Performance," Working Papers on Finance 1216, University of St. Gallen, School of Finance, revised Nov 2015.
    9. Fernandez-Perez, Adrian & Garel, Alexandre & Indriawan, Ivan, 2020. "Music sentiment and stock returns," Economics Letters, Elsevier, vol. 192(C).
    10. Szymon Lis, 2022. "Investor Sentiment in Asset Pricing Models: A Review," Working Papers 2022-14, Faculty of Economic Sciences, University of Warsaw.
    11. Li, Xiao, 2020. "When financial literacy meets textual analysis: A conceptual review," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    12. Itzhak Venezia, 2018. "Lecture Notes in Behavioral Finance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 10751, September.
    13. Radeef Chundakkadan, 2021. "Light a lamp and look at the stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-21, December.
    14. Birru, Justin, 2018. "Day of the week and the cross-section of returns," Journal of Financial Economics, Elsevier, vol. 130(1), pages 182-214.
    15. Kostopoulos, Dimitrios & Meyer, Steffen & Uhr, Charline, 2022. "Ambiguity about volatility and investor behavior," Journal of Financial Economics, Elsevier, vol. 145(1), pages 277-296.
    16. Siganos, Antonios & Vagenas-Nanos, Evangelos & Verwijmeren, Patrick, 2014. "Facebook's daily sentiment and international stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 730-743.
    17. Chen, Yangyang & Goyal, Abhinav & Veeraraghavan, Madhu & Zolotoy, Leon, 2020. "Terrorist attacks, investor sentiment, and the pricing of initial public offerings," Journal of Corporate Finance, Elsevier, vol. 65(C).
    18. Duan, Yuejiao & Liu, Lanbiao & Wang, Zhuo, 2021. "COVID-19 Sentiment and the Chinese Stock Market: Evidence from the Official News Media and Sina Weibo," Research in International Business and Finance, Elsevier, vol. 58(C).
    19. Choi, Paul Moon Sub & Choi, Joung Hwa, 2018. "Is individual trading priced in stocks?," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 76-92.
    20. D’Hondt, Catherine & De Winne, Rudy & Merli, Maxime, 2021. "Do retail investors bite off more than they can chew? A close look at their return objectives," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 879-902.

    More about this item

    Keywords

    Individual investor; Trading behavior; Investor sentiment;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G50 - Financial Economics - - Household Finance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finmar:v:49:y:2020:i:c:s1386418120300136. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/finmar .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.