Google search volume’s ability to explain market activity of precious metal ETFs in the US market

Abstract

Investor attention and its reflection to the stock market is a popular research topic in finance. One of the proxies for measuring this attention among retail investors is Google search volume, or more specifically a standardized figure provided by Google, a Google search volume index (GSVI). Unique features of GSVI include its direct nature and the popularity of Google among the common public.

The GSVI’s ability to capture retail investor attention has been excessively studied in the stock market, but the research has not reached the commodity market to a large extent. Precious metals represent a commodity class, especially interesting during the COVID-19 pandemic due to the safe haven nature associated with them. Literature concerning GSVI in relation to precious metal exchange traded funds (ETFs) has so far been non existing.

This thesis contributes to the existing literature by studying Google search volume index’s ability to explain market activity within the US precious metal ETF market, thus extending the GSVI literature to precious metal ETFs. More specifically, it is tested if GSVI has explanatory power over trading volume and total return index of selected precious metal ETFs. In addition, gold and silver ETFs are studied separately to spot differences between the metals. Special focus is given to silver ETFs due to the GME short squeeze in the beginning of 2021 and its attempted extension to the silver market. The research sample consist of 19 precious metal ETFs studied between 19.8.2018–31.5.2021 and analyzed with panel regressions.

To summarize the results, it is found out that GSVI has very high statistically significant explanatory power over both, trading volume and total return index. In addition, GSVI has a stronger effect on silver ETFs’ trading volume, but a lower effect on silver ETFs’ return index compared with the results obtained with all studied precious metal ETFs. This study opens the research on GSVI’s explanatory power over precious metal ETFs in the US market, leaving multiple avenues for extended research in the future.