Google offers an innovative method to predict market or economic trends: by search “query data”.
From Google
``The answer depends on what you mean by "predict." Google Trends and Google Insights for Search provide a real time report on query volume, while economic data is typically released several days after the close of the month. Given this time lag, it is not implausible that Google queries in a category like "Automotive/Vehicle Shopping" during the first few weeks of March may help predict what actual March automotive sales will be like when the official data is released halfway through April.
``That famous economist Yogi Berra once said "It's tough to make predictions, especially about the future." This inspired our approach: let us lower the bar and just try to predict the present.
``Our work to date is summarized in a paper called Predicting the Present with Google Trends. We find that Google Trends data can help improve forecasts of the current level of activity for a number of different economic time series, including automobile sales, home sales, retail sales, and travel behavior.
``Even predicting the present is useful, since it may help identify "turning points" in economic time series. If people start doing significantly more searches for "Real Estate Agents" in a certain location, it is tempting to think that house sales might increase in that area in the near future.”
In other words, trends from web search data could function as "lead" indicator for possible “turning points” of economic or market activities.
I tried to confirm this theory by comparing the trend of stock market searches with the performance of global stock markets.
And got a pleasant surprise…
Of the last 6 spikes in Google trend’s search for stock market…
largely coincided with stock market bottoms or “inflection points” with stunning near precision (except during the meltdown in October).
Arrows from stockcharts.com reflected on the spikes seen in the Google search trend chart above.
Google trend’s activities somehow appear to mirror the VIX or Fear Index, where such correlation (a peak in searches and a stock market bottom) could have been due to people’s greater appetite for more information possibly out of fear or angst (especially during the latest panic).
Yet I think it won’t be long where markets could spawn out of Google’s trends something in the line of prediction markets or in derivatives.
Finally this reminds us of Jean Baptiste Say’s quote in A Treatise on Political Economy.
``the advantage enjoyed by everyone who, from distinct and accurate observation, can establish the existence of these general facts, demonstrate their connection and deduce their consequences. They as certainly proceed from the nature of things as the laws of the material world. We do not imagine them; they are results disclosed to us by judicious observation and analysis.....
Looks like a handy tool. Thanks for the tip Google.
No comments:
Post a Comment