Sunday, January 22, 2012

Google Insights for Search and the contagion effect

Google Insights for Search allows one to track the frequency of searches for a particular word or phrase in the Google search engine.  This gives one an indication of public's interest in a specific subject matter over time.  Results for the phrase "euro crisis" are shown below.  Note that the peak of search volume was in early December.

Google Insights for Search interest in phrase "euro crisis" - relative index

If one looks at the Italian 5-year yields for example as a comparison, the shapes are similar but the yields on Italian debt peaked a little earlier.

Italy 5-year yield

A natural assumption would be that the general public using Google reacts to global events on a delayed basis. But let's take a closer look at who is actually doing the searching.  Insights for Search produces the following distribution of users.

Google Insights for Search relative interest in phrase "euro crisis" by country

Of the top five countries Ireland, Netherlands, and the UK searching for the phrase "euro crisis" makes sense - particularly given this is an English phrase (the Dutch are quite proficient in English). But Singapore and India concerned with the Eurozone crisis more than the US for example?  What exactly was going on in those countries in December to make them want to learn more about the situation in Europe?  The simplest way to assess this is to look at the two nations' stock markets.

SGF - Singapore CEF

SENSEX - India

It turns out these countries' stock markets dropped to their lows in December, coinciding with the higher frequency of searches for "euro crisis". The market correction also took place in other Asian nations but they would be less likely than India and Singapore to search for an English phrase. That means the public in these countries was viewing this sell-off as a contagion effect driven by the Eurozone crisis.

The US on the other hand was number nine on the list because the US stock market was not as impacted by the same events - a lower contagion effect.  Here are some possible conclusions that can be drawn from this exercise:
  • Google Insights for Search can be a useful indicator to track global public's interest in financial events.
  • It allows one to drill down to see exactly who is doing the searching in order to understand why there is interest in a specific phrase.
  • The most intriguing possibility is that this tool - particularly the rankings by country - may be used to track levels of contagion, as the public links events in their region (the stock market sell-off in Asia) to another global event (the crisis in Europe.)
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