Google Search Volume and Individual Investor Trading

Abstract

We relate Google search volumes, proxying for economic concerns of households (FEARS), to individual investor trading. The trading data come from a large German brokerage covering more than 100 thousand investors over ten years. When FEARS is high, individual investors are on the sell side of the market, particularly trading out of risky assets. This effect continues over the following days. Additionally, we find FEARS to have a negative short-horizon impact on stock market returns, which reverses over the following six days. This shows that the effect of sentiment on the market is temporary, while on individual investors it is permanent. In subsample analyses, we find results that are consistent with the theoretical prediction that less sophisticated investors are more prone to sentiment.

Keywords: individual investor; trading behavior; investor sentiment

JEL Classification: D03, D14, G02; G11