36 Pages Posted: 22 Apr 2010 Last revised: 16 Mar 2011
Date Written: March 15, 2011
We use search volume for firms' products to predict revenue surprises, earnings surprises and earnings announcement returns. We find that increases (decreases) in the search volume index (SVI) of a firm's most popular product strongly predicts positive (negative) revenue surprises. This predictive power is weaker for standardized unexpected earnings (SUE). SVI has strong predictability for returns around earnings announcements, especially among firms with few products, growth firms and firms that manage their reported earnings. Taken together, the evidence suggests that search volume for a firm's products is a value-relevent leading indicator about a firm's future cashflow that the market does not fully incorporate into prices until the earnings announcement.
Keywords: Search Volume, Earnings Surprises, Revenue Surprises
JEL Classification: G10, G14
Suggested Citation: Suggested Citation
Da, Zhi and Engelberg, Joseph and Gao, Pengjie, In Search of Fundamentals (March 15, 2011). AFA 2012 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1589805 or http://dx.doi.org/10.2139/ssrn.1589805