Investor attention and the predictability of stock returns

Abstract

In this study we investigate whether web searches have any impact in trading activity and abnormal returns predictability. We use Goolge Search Volume as an direct proxy for investor's attention for all the stocks in S\&P500 from 2008-2014. The search term is the stock's ticker. We assume that individuals use web searches when they want to buy the stock. We find that search volume increase trading activity after controlling for existing proxies of attention, such as absolute abnormal returns and return volatility. Search volume has also power into predicting returns one and two weeks ahead. It creates positive buying pressure at the second week and there is a total reversal within a year. We find that search volume apply negative pressure in one year returns, which can be interpreted as the reduction the information asymmetries and enhancement of market efficiency.