Measures of volatility, anticipated earnings and a dozen other ratios are all meant to help finance professionals foresee the next trend in the market. But these figures are all based on completed transactions. Burton Malkiel argued, that they predict the future about as well as a blind monkey throwing darts at the WSJ (random and less hilarious). Perhaps ‘extra-transactional’ data, such as prospective investor behavior, would help analysts better link the past with the future.
In the week following the Dow’s bearish performance, 12.3 million consumers tried to make sense of it all and logged on to Google Finance, Yahoo! Finance, MSN Money, MarketWatch and CNN Money. 3.4 million of those consumers went on to conduct over 9 million different stock searches, mostly on Yahoo! Finance. The five most heavily searched securities were Apple Inc., Dow Jones (of course), AHM Investment Corp., Sun Microsystems, Inc. and General Electric.
It’s not so clear what drove these numbers. Media mentions probably drove interest in the Dow, but it does not appear that this was the case for other heavily searched stocks.* The traditional volatility and earnings measures did not appear to separate these stock from others in any statistically significant way either. The least searched stocks, also from an array of industries, returned simple averages on their numbers similar to those in the following table.** Average volatility (beta) was 1.18 and average anticipated earnings were 25.09.
However, a 10% increase in a stock’s average daily trading volume was associated with a 2% increase a stock’s search numbers. But this relationship proved to be as tenuous as getting a monkey with better vision to throw darts at the Journal.
In this light, financial search metrics appear wholly independent of traditional finance data. Despite increased access to the numbers, stock searches may be driven more by a computer logo than a hot stock tip. Whatever the cause, a rigorous collection of this behavioral data may reveal what truly drives a curious individual to convert into a meaningful investor.
* Media mentions for week 31, from Google Finance, August 13
** Includes: PKD, NOC, QCOM, OSUR, CVBF, WWY, WRI, BHI, GD, CPSL, HES, RADN, PEG, TIF, JRC, CAL, ALK, TTEK, UMPQ and PBR