Positive Feedback Trading: Google Trends and Feeder Cattle Futures

Abstract

What do investors’ searches for public information reveal about their subsequent trading strategies?  Does their search for information support the hypothesis of market efficiency or does it lend support to the idea that investors have behavioral biases. Using Google Trends, we find that the volume of Google searches about feeder cattle is associated with re-enforcement of momentum trading in a manner consistent with a positive feedback mechanism.  Further, we find evidence that search volume for “cattle” is associated with higher volatility and thus amplifies the positive feedback trading mechanism, while the search volume for “corn”, a major input to cattle production, is associated with a reduction in volatility.