Google Internet search activity and volatility prediction in the market for foreign currency
Geoffrey Peter Smith
Finance Research Letters, 2012, vol. 9, issue 2, 103-110
I study whether evolution in the number of Google Internet searches for particular keywords can predict volatility in the market for foreign currency. I find that data on Google searches for the keywords economic crisis+financial crisis and recession has incremental predictive power beyond the GARCH(1,1). These results support the mixture of distributions hypothesis in that volatility is linked to the stochastic rate at which information flows into the marketplace. These results also demonstrate the potential for Google to become a storehouse of information for financial markets.
Keywords: Google insights for Search; ARCH (GARCH); Mixture of distributions hypothesis (MDH); Foreign currency; Foreign exchange (search for similar items in EconPapers)
JEL-codes: F31 G14 G17 F37 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:9:y:2012:i:2:p:103-110
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