Does investor interest in stocks as measured by Google Insights for Search predict which stocks will exhibit return continuation? In his June 2010 paper entitled “The Demand for Information”, Gordon Sims examines the effects of investor attention to stocks as defined by relative search frequency from Google Insights for Search (Stock Information Demand) to short-term stock momentum. The past return interval for momentum measurement is four weeks, augmented by a one-week delay in portfolio formation to avoid short-term reversal. Search term construction for Stock Information Demand focuses on intent to buy or sell a stock by appending “stock” or “quote” to a company’s name or ticker symbol. Using weekly returns for July 2003 through December 2009 for those S&P 500 stocks (as of July 31, 2003) with sufficient weekly Stock Information Demand data over the period 2004-2009 (214 stocks), he finds that:
- Over the entire sample of stocks, there is no reliable continuation of past four-week return (plus skip-week), with or without consideration of Stock Information Demand.
- However, there are potential indications for sample subsets:
- Stocks with high Stock Information Demand that have increased in price over the last four weeks tend to continue advancing for the next four weeks, with no subsequent reversal. This continuation is absent for past winners with low Stock Information Demand.
- Stocks with low Stock Information Demand that have decreased in price over the last four weeks exhibit a weak tendency to continue declining over many weeks.
- Shorter and longer past return measurement intervals and different sorting thresholds yield similar results, alleviating concern about data snooping bias.
- The sample of stocks is modest and skewed toward firms with large market capitalization. The sample period is short, not accommodating measurement of momentum effects for commonly used past return intervals.
In summary, evidence from limited tests suggests that online search activity may help identify which recent winning and losing stocks exhibit some tendency to continue winning and losing.
