Google Can Do What?!

Last week in class, we learned that Google’s mission is to “organize the world’s information and make it universally accessible and useful.” Google carries out this mission through various outlets, including its enormous search-engine, Gmail, Google docs, and Google Calendar—just to name a few. However, Professor Kane also mentioned that Google can actually do much more than that. Google’s data is so powerful that it can be used to predict flu outbreak even before the Center for Disease Control and Prevention. This week, economists published a paper stating that Google Trends data can do even more than predict flu trends; it can now predict the stock market.

According to three economists (Tobias Preis of Warwick Business School in the U.K., Helen Susannah Moat of University College London, and H. Eugene Stanley of Boston University), Google Trends data is a useful predictor of daily price moves in the Dow Industrial Jones average. Their research used broader search trends to predict the whole stock market’s movements. Using publicly available data on search terms from Google Trends, these economists tracked 98 terms, mostly related to finance and economics from 2004 to 2011. Then they compared the searches to the closing price of the Dow Jones Industrial Average. Utilizing this data, the researchers invented a pretend investing game and found eye-opening results. Their research showed that “an uptick in Google searches on finance terms reliably predicted a fall in stock prices. Debt was the most reliable term for predicting market ups and downs.” By adjusting their investment strategy according to search results, the researchers were able to increase their hypothetical portfolio by 326 percent.

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These results are incredibly surprising, particularly in light of earlier research published by Professor Preis in 2010. Back in 2010, Tobias Preis used Google Trends data and found the opposite conclusion. While researchers found a strong correlation between Internet searches for a company’s name and its trade volume, the Google data could not predict the weekly fluctuations in stock prices.
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So what caused the change in results and what does this mean for investors?

Forbes article “Big Data Gets Bigger: Now Google Trends Can Predict The Market,” suggests that the answer might come from looking at changes in the nature of what’s reported on Google Trends. Data is getting bigger, by getting finer and faster. A comparison of two papers co-authored by Google’s chief economist Hal Varian shows exactly how Google’s data is getting faster, better, and bigger. When it comes to data for market prediction, size certainly matters, argues Varian.

Smart investors might see this as an opportunity for a stronger portfolio and alternative investment strategies; however, I personally would be skeptical relying too heavily on this data. Just last week, a tweet from a hacked Associated Press account declaring that there had been an explosion at the White House caused the Dow Jones to plummet 145 points within minutes. This incident shows how the Internet can falsely relay data and cause an instantaneous, unwarranted response. As we have learned, the Internet is a double-edged sword and while Google Trends might be able to predict what the stock market will do, there is a possibility for faulty data (and/or hacking). While it may be too risky to rely on Google Trends for investment decisions, the recent results are important because they have implications far beyond the stock market. The online spread of data is increasing and becoming more accurate across various sectors, and, if used wisely, can be used for myriad purposes. I’m curious as to where the proliferation of data will take us in the future and wonder: what type of data would make your life easier?

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2 thoughts on “Google Can Do What?!

  1. This post poses a very interesting question about what are the limits of big data. I, for one, share your skepticism about Big Data and the stock market. It seems to me that the stock market, one of the only markets I can think of that adheres to the laws of supply and demand almost instantly before your eyes, moves a little too quickly to predict day-to-day fluctuations in stock prices. However, long term investing may be a completely different story.

    I really like the question you pose at the end of your post, about where the proliferation of data will take us in the future. I found the example of Google being able to predict flu outbreaks very interesting when we discussed it in class, as I find the subject of your post. Is it possible that Google will one day be able to tell us potential crime outbreaks? A decrease in the unemployment rate? When the local grocery store will run out of Diet Pepsi? These examples seem a bit absurd, but Google search histories can be very telling. If Google can predict our age and gender, why not the traffic jams of tomorrow, today?

  2. This is a really interesting post because it is something that I would have never imagined being able to do using Google. I really liked how you outlined the information. I also would be skeptical relying on this data in my own investments. It poses a very interesting question on what the limits of Google are. It is cool to think that Google will be able to predict something we cant even imagine it doing now. I wonder also as John does what the limits to this are? Is it a long term or short term thing? I really liked this post and thought it was a great addition to what we learned in class.

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