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Google Search Terms Can Predict the Stock Market

blogs.smithsonianmag.com

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Re: Google Search Terms Can Predict the Stock Market

#51

Post by Guvante »

You are always going to be able to find trends between data points if you have enough information. In order to tell whether you actually have predictable information you need to do a double test, which they don't seem to mention anywhere.

Typically you split your data pool in half and use data analysis to determine some kind of relation, such as the change in "color" seems to correlate to a reverse change in DOW Jones. You then generate a prediction algorithm based on that.

Finally you use your prediction system on the other half of your data, to see if you are actually predicting or just correlating. Feel free to adjust any of your methodology but make sure you don't include the second half in your generation step or else you have only shown correlation not prediction.

Re: Google Search Terms Can Predict the Stock Market

#52

Post by Tobu »

Jabbles wrote: post #19
PaulHoule wrote: post #9

Earlier quoted context omitted.

Lots of people use the Dow precisely because it is a bad indicator. If they don't like the conclusion they get with something better, like the W5000 or the S&P500, they can try it again with the Dow for a "second opinion." The whole methodology is a joke anyway. If you evaluate a huge number of search terms, some of them are going do better than others. So terms that might mean something ("debt") get mixed up with te…

Sometimes known as data dredging. https://en.wikipedia.org/wiki/Data_dredging

This has led to some interesting neurological findings: Neural correlates of interspecies perspective taking in the post-mortem Atlantic Salmon

http://prefrontal.org/files/posters/Bennett-Salmon-2009.jpg via http://www.metafilter.com/85322/The-Wisdom-of-Salmon

An extreme example, illustrating a common mistake in the field. https://xkcd.com/882/ has the gist of it.

Re: Google Search Terms Can Predict the Stock Market

#53

Post by lmg643 »

PaulHoule wrote: post #9
rm999 wrote: post #3

Cool paper, but the fact that a silly keyword like 'color' is so significant without an author explanation makes me question their results. I really wish they dug deeper and explained unintuitive results like that. There may be a bug in their experiment. Also, why would they use the Dow Jones Industrial Average? It is a ridiculously bad average of stock market performance for many reasons. This planet money podcast g…

Lots of people use the Dow precisely because it is a bad indicator. If they don't like the conclusion they get with something better, like the W5000 or the S&P500, they can try it again with the Dow for a "second opinion." The whole methodology is a joke anyway. If you evaluate a huge number of search terms, some of them are going do better than others. So terms that might mean something ("debt") get mixed up with te…

The DJIA is a "bad" index but it is highly correlated with the S&P 500. I'm including a link to a study looking at ~70 years of data which shows a 0.95 correlation coefficient between DJIA and SP500.

http://www-stat.wharton.upenn.edu/~steele/Courses/434/434Con...

So, while the methodology might be spurious (random search terms may give false positives) i don't think the use of the Dow vs SP500 is a key criticism.

Re: Google Search Terms Can Predict the Stock Market

#54

Post by shirederby »

Tobu wrote: post #52
Jabbles wrote: post #19

Earlier quoted context omitted.

Sometimes known as data dredging. https://en.wikipedia.org/wiki/Data_dredging

This has led to some interesting neurological findings: Neural correlates of interspecies perspective taking in the post-mortem Atlantic Salmon http://prefrontal.org/files/posters/Bennett-Salmon-2009.jpg via http://www.metafilter.com/85322/The-Wisdom-of-Salmon An extreme example, illustrating a common mistake in the field. https://xkcd.com/882/ has the gist of it.

The "Salmon study" was an illustration of the necessity of correcting for multiple comparisons in voxel-wise testing. The problem it's addressing isn't itself data dredging, based on the definition linked above on Wikipedia.

Uncorrected multiple comparisons are, of course, a big portion of the statistical dubiousness inherent it "data dredging"

Re: Google Search Terms Can Predict the Stock Market

#55

Post by OGC »

mattparcher wrote: post #44

Somewhat related, on a more micro level: some have suggested a trend in which news about Anne Hathaway drives up the price Berkeshire Hathaway’s stock. Six examples from 2008-2010: http://www.huffingtonpost.com/dan-mirvish/the-hathaway-effec... A computer scientist who works with hedge funds: "We come across all sorts of strange things in our line of business, strange correlations" http://www.theatlantic.com/technolo…

So it's just "Correlation does not imply causation"?

Re: Google Search Terms Can Predict the Stock Market

#56

Post by foobarqux »

hammock wrote: post #10
dawilster wrote: post #2

I was thinking of something very similar the other day but in regards to bitcoins. They are very volatile at this stage and whenever they're in the public eye they either seem to increase or decrease in value. Perhaps somebody could perform a study as to a relation between the volume of bitcoin related search terms and it's market value.

As soon as someone figures out bitcoin derivatives (e.g. options), you'll be able to buy or sell the volatility. More broadly, such a development may also stabilize those price fluctuations.

What do you mean by "figure out"? Options (mpoe) and futures (icbit) exist in some form.

Re: Google Search Terms Can Predict the Stock Market

#57

Post by kragen »

tgrass wrote: post #15
Symmetry wrote: post #12

Ignoring methodology concerns for a moment, there have been times in the past where people have found statistical regularities like this in the stock market. Sometimes people have made money on these discoveries. If not someone else will as soon as the researcher publishes. But making money on them gets rid of them, and given that this is now publicly available information those regularities certainly no longer exist…

An economist and his friend are walking down the street when the friend sees a ten dollar bill on the sidewalk. “Look,” he says, “it’s a ten dollar bill”. “Nonsense,” says the economist. “If that was a ten dollar bill, someone would have picked it up by now.”

Most of the time, the economist is right about that: the vast majority of ten-dollar-bill-appearing things found on sidewalks are obviously not real ten-dollar bills once you pick them up. They're advertisements for nightclubs or get-rich-quick schemes and whatnot.
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