Google search and stock returns in emerging markets

The Fama-French model offers a framework explaining the stock return variability by capturing the size, value, profitability, and investment patterns of firms; but it fails in capturing the low average returns on small stocks. This article contributes to asset pricing models by investigating the role that the volume of Google search might play as augmented factor in explaining the stock returns. Through system-GMM estimations with the data in the period of 2009-2016 for 5-emerging markets (Indonesia, Malaysia, Philippines, Thailand, and Vietnam), we find that Fama-French model is not always effective. The increases in Google search volume appear to have significant negative impacts on stock returns in the case of Philippines, Thailand, and Vietnam. This suggests that investors might be more sensitive to bad news than good news in their investment decisions. Furthermore, our Google indicator is found to have an influence on the Fama-French factors in explaining the stock returns.