TAILIEUCHUNG - Effect of online searches on stock returns

I empirically test how online information seeking behavior of investors leads to an impact on asset prices. Various theoretical models assume that information seeking behavior of investors has an impact on asset prices. However, it is very difficult to empirically test this, since the actual information acquisition process of the investors is unobservable. | http afr. Accounting and Finance Research Vol. 7 No. 1 2018 Effect of Online Searches on Stock Returns Saurabh Ahluwalia1 PhD 1 Assistant Professor MSC05 3090 Anderson School of Management 1 University of New Mexico Albuquerque NM 87131-0001 USA Correspondence Saurabh Ahluwalia PhD Assistant Professor MSC05 3090 Anderson School of Management 1 University of New Mexico Albuquerque NM 87131-0001 USA Received October 24 2017 Accepted November 13 2017 Online Published November 20 2017 doi URL https Abstract I empirically test how online information seeking behavior of investors leads to an impact on asset prices. Various theoretical models assume that information seeking behavior of investors has an impact on asset prices. However it is very difficult to empirically test this since the actual information acquisition process of the investors is unobservable. Using a unique data set from Google Trends I construct a search volume index SVI and use it to proxy for the information seeking behavior of retail investors. Using a portfolio based approach I document the asymmetric response of stock returns to the changes in the google search volume index. I find that the portfolio with the highest increase in the SVI has positive and significant alphas while portfolios with decrease in SVI show no significant results. My results are robust to alternative specifications of risk models time frames and measures of search index. Overall my results are in line with the hypothesis that retail investors trades can effect stock prices. The paper s findings add to the debate about information content of the retail trades. Keywords Asset Pricing Google Searches Retail Investors Risk Models Portfolio 1. Introduction Stock markets act as aggregators of information. Multitudes of investors seek information about different stocks that are traded in the market. It is the information seeking behavior of the investors that makes .

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• Asset pricing
• Google searches
• Retail investors
• Risk models
• Various theoretical models assume
• Risk return Portfolio theory asset pricing models
• Portfolio theory
• Capital asset pricing model
• Capital market line
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• Arbitrage pricing theory
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• Non marketable risk of investors
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