Blue: Stocks, Red: Bonds Data on Internet searches can help predict certain kinds of economic statistics before they become available. This is one latest view by Hal Varian, a professor of economics at the University of California,
Berkeley who also happens to be Google’s chief economist. He says that fluctuations in the frequency with which people search for certain words or phrases online can improve the accuracy of the econometric models used for prediction.
These data are available through a site called Google Trends, which allows anyone to download an index of the aggregate volume of searches for particular terms or categories. We can use the data for searches of real estate agents to predict the number for housing sales or using data on searches for trucks and SUVs to predict the monthly sales of motor vehicles, etc.
It can also be used to track the sentiments indicator. Over the last few months the word recession is dominates the list of most searched words and the total searches for the word 'stocks' has being underperformed the total searches for the word 'bonds' in the last few months.
Thus it makes good sense for one to form a list of words that signals recovery/doom and form a composite index of searches on Google and use that as an indicator to track the markets. I am working on the same and may be my next blog would have the same 'Google Sentiment Index'.
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