How Google Searches Can Predict The Next Stock Market Crash

Researchers have created a method to identify search patterns that can predict stock market movement.

When will the stock market crash? As with most everything else, the answer lies within Google.

In a study published in the Proceedings of the National Academy of Sciences, researchers from Warwick Business School and Boston University have created a method to identify search terms that precede a stock market crash.

To help algorithms identify these patterns, the research team categorized every word on Wikipedia into different topics (e.g., words such as "business," "management," and "bank" fall under the business topic). The researchers then consulted Google Trends to find spikes in business- and politics-related queries between 2004 and 2012, and found a rise in certain terms can predict stock market falls.

"By mining these datasets, we were able to identify a historic link between rises in searches for terms for both business and politics, and a subsequent fall in stock market prices," Suzy Moat, assistant professor of behavioral science at Warwick Business School, said in a statement.

In particular, she said the link between political search terms and market activity "provides evidence that valuable information may be contained in search engine data for keywords with less obvious semantic connections to events of interest." Beyond predicting stock market movement, the researchers say the development of this method can be used to create predictive models for other applications as well.

[Image: Flickr user Iman Mosaad]

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5 Comments

  • So can this be proactive or is it only reactive? You can see what spikes of words were common among the crash. We've really only had two crashes since Google came about right? The underlying issues seemed different to me. I don't think they will be able to predict anything, but definitely identify the common searches after the event.

  • Blair Keil

    It is not just the stock market it is the general thinking of everyone in the world that googles. People began to start to question the validity of things and they start googling it. With an increase number of "stock market crash" google searches, the world has come to question the validity of the stock market. I participated in the weed bubble, the stock market is BS

  • Alejandro Carranza

    I was wondering how is it that they have access to those datasets? Are they public?