The supply of information and price formation: Evidence from Google's search engine

Abstract

This study develops several Google search-based measures to test the relation between earnings-week online search results and the speed of price discovery. These measures are based on searches using only a firm's ticker symbol in the search string. I collect the total number of search results (across all search result pages) as well as the type and content of search results on the first three pages of search results. I find that the quantity, quality, and content of search results have varying effects on the speed at which earnings news is impounded into stock price. I also find that effects are only observed for search results presented on the first page of a Google search. Overall, my results suggest that (1) increases in online information are associated with slower price discovery, and (2) the likely mechanism by which this association operates is through useful search results being crowded off the first page of results by more complex or irrelevant search results.