Google Search Volume and its Influence on Liquidity and Returns of German Stocks

We show that the search volume on Google not only serves as an intuitive proxy for overall recognition in a firm, but also captures the attention of stock market investors. Our results suggest that an increase in search queries is associated with a rise in trading activity and stock liquidity. We attribute the improved liquidity to a reduction in asymmetric information costs and conclude that the search volume primarily measures the recognition of uninformed investors. Moreover we find evidence that an increase in search volume is associated with temporarily higher future returns, which reinforces our previous finding