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Does Internet Search Volume Predict Market Returns and Investors’ Trading Behavior?

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  • Bonha Koo
  • Joon Chae
  • Hyungjoo Kim

Abstract

The authors create a weekly investor sentiment index for Korea using Internet search volume, which directly reflects almost every household’s concerns about the market. In addition, they analyze how investor sentiment affects the aggregate market and investors’ trading behavior. The results show that the index predicts a positive future return reversal after 3 weeks, a temporary increase in volatility, and a shift in fund preferences from equity funds to money market funds that reverses after 3 weeks. Furthermore, an increase in the authors’ index coincides with individuals selling KOSDAQ-listed stocks and buying KOSPI-listed, large, or growth stocks but reversing course after 3 weeks in and out of sample. Furthermore, this study provides evidence that the authors’ sentiment index does not Granger-cause institutions’ attitudes but does Granger-cause individuals’ attitudes.

Suggested Citation

  • Bonha Koo & Joon Chae & Hyungjoo Kim, 2019. "Does Internet Search Volume Predict Market Returns and Investors’ Trading Behavior?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 20(3), pages 316-338, July.
    • Handle: RePEc:taf:hbhfxx:v:20:y:2019:i:3:p:316-338
    DOI: 10.1080/15427560.2018.1511561
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    Cited by:

    1. Sourav Prasad & Sabyasachi Mohapatra & Molla Ramizur Rahman & Amit Puniyani, 2022. "Investor Sentiment Index: A Systematic Review," IJFS, MDPI, vol. 11(1), pages 1-27, December.
    2. 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).

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