Internet Search and Momentum

32 Pages Posted: 15 Mar 2011  

Zhi Da

University of Notre Dame - Mendoza College of Business

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management

Pengjie Gao

University of Notre Dame - Mendoza College of Business

Date Written: July 30, 2010

Abstract

In a sample of Russell 3000 stocks from 2004 to 2008, we find the momentum effect (Jegadeesh and Titman (1993) and Gutierrez and Kelley (2008)) to be much stronger among those searched more in Google. Our result provides strong support for the overconfidence model as in Daniel, Hirshleifer, and Subrahmanyan (1998) for several reasons: (1) retail investors are more likely to search a stock in internet and are more likely to suffer from overconfidence and other behavioral biases; (2) investors are likely to be even more overconfident in stocks that they search and analyze on the internet; (3) as searches in Google are often led to the same information, the "private signals" to the investors are in fact highly correlated, thus exacerbate the impact of overconfidence. We confirm that the relation between internet search and momentum effect is not driven by other variables such as news events, size, analyst coverage, and trading volume, which have been documented to be related to the momentum effect. Finally, we find the stronger momentum effect among stocks searched more in Google mainly comes from the winners, consistent with the insight in Barber and Odean (2008) that retail investors on average purchase attention-grabbing stocks.

Keywords: Price Momentum, Google Search, Overconfidence

JEL Classification: G12

Suggested Citation

Da, Zhi and Engelberg, Joseph and Gao, Pengjie, Internet Search and Momentum (July 30, 2010). Available at SSRN: https://ssrn.com/abstract=1785924 or http://dx.doi.org/10.2139/ssrn.1785924

Zhi Da (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Notre Dame, IN 46556-5646
United States

Joseph Engelberg

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Pengjie Gao

University of Notre Dame - Mendoza College of Business ( email )

246 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-8048 (Phone)

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