Capturing Investor Attention – Do Pre-IPO Google Searches Predict Stock Performance? Evidence from Europe

The amount of investor attention has been found to affect stock returns. Recently, a novel and unique attention measure – the volume of Google searches – has been found to predict IPO returns in the US market (Da et al., 2011). This study brings insight on the same issue and confirms that similar dynamics prevail in the European markets. Using search volume indices from Google Trends as the main explanatory variable, I study a sample of 254 IPOs from the beginning of 2004 to the late 2015 by various controlled cross-sectional regressions and robustness checks. I find that search volumes can predict IPOs’ first-day returns significantly and show signs of predicting long-term returns in continental European markets. The results of this study are mostly in line with attention-induced price pressure hypothesis by Barber and Odean (2008) that suggests that stocks that gather an unusually high amount of attention experience a positive short-term price pressure accompanied by long-term price reversal