In Search of Gold: Insights From Google Searches on Portfolio Hedging Effectiveness

Abstract

Online investor attention, measured by Google searches, may provide valuable information for the assessment of the co-movement between financial assets. In our empirical analysis, we draw upon an extension of the dynamic conditional correlation model and find that online investor attention is a statistically significant determinant of the time-varying correlations between stocks and gold-, silver-, and crude oil future contracts. Our results, relying on daily data over eleven years, suggest that market participants may enrich asset allocation strategies by means of online investor attention. Taking a practical point of view, we demonstrate that the informational content of Google searches increases the hedging effectiveness of combined portfolios.

Keywords: Investor Attention, Google Search Volume, Dynamic Conditional Correlation, Hedging Effectiveness

JEL Classification: C43, C51, G11