Investor Pessimism and the German Stock Market: Exploring Google Search Queries

39 Pages Posted: 29 Jun 2016 Last revised: 5 Sep 2016

See all articles by Thomas Dimpfl

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics

Vladislav Kleiman

University of Tuebingen - Faculty of Economics and Social Sciences

Date Written: September 5, 2016

Abstract

We analyze the effects of retail investor sentiment on the German stock market by introducing four distinct investor pessimism indices (IPIs) based on selected aggregate Google search queries of households. We assess the impact of weekly changes in sentiment captured by the IPIs on both contemporaneous and future DAX returns, volatility and trading volume. The indices are found to have individually varying but overall remarkably high explanatory power. If retail investor pessimism increases, contemporaneous market returns tend to decrease, accompanied by increases in volatility and trading volume. Moreover, future returns tend to increase while future volatility and trading volume decrease. However, the observed effects are only of transitory nature and vanish after at most two weeks. The outcome can be interpreted as correction effects. Overall, the results are well in line with modern investor sentiment theory.

Keywords: Investor Pessimism; Sentiment; Google Search Queries; LASSO; Sparse PCA

JEL Classification: C43, C53, G12

Suggested Citation

Dimpfl, Thomas and Kleiman, Vladislav, Investor Pessimism and the German Stock Market: Exploring Google Search Queries (September 5, 2016). Available at SSRN: https://ssrn.com/abstract=2801698 or http://dx.doi.org/10.2139/ssrn.2801698

Thomas Dimpfl

University of Tuebingen - Department of Statistics and Econometrics ( email )

Germany

Vladislav Kleiman (Contact Author)

University of Tuebingen - Faculty of Economics and Social Sciences ( email )

Mohlstrasse 36
Tuebingen, Baden-Wuerttemberg 72074
Germany

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