Lookback: Google and Wikipedia searches can predict market movements, say researchers

Researchers in the UK say they have found links between Google and Wikipedia searches and movements in benchmark indexes

 

The secret to predicting the stock market may not be as elusive as previously thought, according to researchers at Warwick Business School in the UK. The researchers say they have found links between Google and Wikipedia searches and movements in the Dow Jones Industrial Average.

The team, led by Suzy Moat, senior research fellow at the school, used historic analysis and detected increases in views of financially related Wikipedia pages prior to stock market falls. This led them to conclude that online encyclopaedia Wikipedia could have been used as an early warning sign of market movements.

The researchers found that a simple trading strategy based on changes in the frequency of page views would have led to profits of up to 141%. In addition, an investor who could have used a strategy of using the viewing figures of 285 pages relating to general financial topics, such as macroeconomics, capital and wealth, would, they say, have generated profits of up to 297%. No evidence was found that editing activity had any link to stock market movements. Moat says the study, which was published in Scientific Reports on May 8, provides an insight into how people gather information before they decide to take action in the real world.

Two weeks earlier, Moat and two other academics at Warwick Business School published a paper detailing their findings relating to Google. They found that a trader using a strategy based on the number of queries on Google that included the keyword 'debt' could have achieved returns of up to 326%.

 

 

State Street Global Markets' Investor Confidence Index (ICI) rose in April to 93.6 points, up from 88.1 in the previous month. North American institutions, which in March had pushed the index down, played a bit part in April's rise as their confidence rose 10.2 points to 105.8. In contrast to that optimism, confidence within European and Asian institutions fell slightly - down 3.9 points to 87.8 and 2.1 points to 85.2, respectively.

The ICI measures investor confidence or risk appetite by analysing the buying and selling patterns of institutional investors: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral, being the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets.

 

Nearly eight out of 10 adults (78%) expect their savings rates will fall below inflation during the next 12 months, according to the latest Legal & General MoneyMood survey. Comparing the results with last year, the survey suggests that people are becoming increasingly anxious about the effects of inflation, as only 29% thought their savings would rise by less than inflation 12 months ago. Just under six out of 10 adults (59%) asked also said that they expected their earnings would fall behind inflation during the next 12 months, compared with 38% at the same time last year. It is not surprising that people are expecting the real value of their cash to fall in the upcoming 12 months, as statistics from the Office of National Statistics show that average wage growth has been well below inflation for nearly four years.

The latest MoneyMood survey took place from April 26 to April 28, 2013, and was conducted among a ‘nationally representative sample' of approximately 1,000 adults.

 

 

State Street and the Economist Intelligent Unit have conducted a study on risk awareness that showed how institutional investors' risk-aware culture has sharply increased compared with 2007. More than three-quarters of executives surveyed said their organisations were currently more risk-aware, whereas only 30% declared that in 2007.

However, despite a greater awareness of risk, the study revealed that the majority of non-risk staff (52%) think the risk function at their organisations exists to fulfil regulatory obligations, whereas 30% of risk staff think that way. Around 300 investment institution executives across Asia, Europe and America were surveyed for the study.

 

Structured products creators and salespeople have lost their sense of a ‘fiduciary duty' to offer the best value to investors, according to Mads Jensen, chief executive of Jensen Capital Management, speaking at the Structured Products Nordic Region conference in Stockholm on May 16.

Following his presentation, ‘Risk return distribution and the impact on investor time horizon', a member of the audience asked Jensen whether structured products pose a problem in that they are over-complicated in order to generate high fees for issuers.

"What the industry has forgotten or neglected over the past decade is the fiduciary duty to offer the client the right product," agreed Jensen. "This is one of the reasons we've had problems with mis-selling. "We're all here to make money, but the fiduciary duty of the financial adviser is to create the same risk and return product at the lowest cost."