Does Internet Search Volume Predict Market Returns and Investors' Trading Behavior?. Issue 3 (3rd July 2019) - Koo, Bonha
Abstract: The authors create a weekly investor sentiment index for Korea using Internet search volume, which directly reflects almost every household's concerns about the market. In addition, they analyze how investor sentiment affects the aggregate market and investors' trading behavior. The results show that the index predicts a positive future return reversal after 3 weeks, a temporary increase in volatility, and a shift in fund preferences from equity funds to money market funds that reverses after 3 weeks. Furthermore, an increase in the authors' index coincides with individuals selling KOSDAQ-listed stocks and buying KOSPI-listed, large, or growth stocks but reversing course after 3 weeks in and out of sample. Furthermore, this study provides evidence that the authors' sentiment index does not Granger-cause institutions' attitudes but does Granger-cause individuals' attitudes.