Is Google Search Behavior Related to Volatility? Incorporating Google Trends Data into a GARCH Model for Equity Volatility

Authors

Timothy de Silva, Claremont McKenna CollegeFollow

Abstract

Intuitively, one would expect that internet search volume would contain valuable information about investor sentiment for a company. With the development of new data sources, such as Google Trends, this relationship can be more easily and objectively examined. This paper seeks to examine the relationship between a company’s stock price volatility and its Google search volume. A small cross-section of twenty companies is considered, and the goal of this paper is to demonstrate the power of Google Trends data in hope of initiating further research. Using a conventional GARCH framework for financial market volatility, an economically and statistically significant contemporaneous relationship between Google search volume and equity volatility is found.

Recommended Citation

de Silva, Timothy (2016) "Is Google Search Behavior Related to Volatility? Incorporating Google Trends Data into a GARCH Model for Equity Volatility," Undergraduate Economic Review: Vol. 13: Iss. 1, Article 13.
Available at: https://digitalcommons.iwu.edu/uer/vol13/iss1/13