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Web search volume acceleration and cross-sectional returns

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  • Yang, Baochen
  • Duan, Xianli
  • Ma, Yao

Abstract

This study examines the effect of web search volume acceleration (WSVA) on predicting future stock returns. We find that WSVA can significantly and negatively predict future stock returns in the Chinese stock market. After controlling for firm characteristics and changing the WSVA measurement, the negative return predictability of WSVA is still significant, and WSVA provides more predictive information than is contained in the web search volume speed (WSVS). Our empirical results are unable to be explained by existing common risk factors. We find that the return predictability of WSVA becomes stronger for stocks that grab higher investor attention, during higher investor sentiment period, and for stocks that face higher limits of arbitrage, which supports for stock mispricing theory in behavioral finance.

Suggested Citation

  • Yang, Baochen & Duan, Xianli & Ma, Yao, 2023. "Web search volume acceleration and cross-sectional returns," Research in International Business and Finance, Elsevier, vol. 66(C).
    • Handle: RePEc:eee:riibaf:v:66:y:2023:i:c:s0275531923001927
    DOI: 10.1016/j.ribaf.2023.102066
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    References listed on IDEAS

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    1. Constantinos Antoniou & John A. Doukas & Avanidhar Subrahmanyam, 2016. "Investor Sentiment, Beta, and the Cost of Equity Capital," Management Science, INFORMS, vol. 62(2), pages 347-367, February.
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    3. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    4. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    5. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    6. Pontiff, Jeffrey, 2006. "Costly arbitrage and the myth of idiosyncratic risk," Journal of Accounting and Economics, Elsevier, vol. 42(1-2), pages 35-52, October.
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    Cited by:

    1. Ma, Yao & Yang, Baochen & Ye, Tao, 2024. "Quality acceleration and cross-sectional returns: Empirical evidence," Research in International Business and Finance, Elsevier, vol. 69(C).

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    More about this item

    Keywords

    Web search volume acceleration; Cross-sectional returns; Mispricing; Return predictability;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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