Online Search Activity and Market Reaction to Earnings Announcements

This paper leverages Google Trends search volume data from 2004 to 2008 as a proxy for investor information demand. The analysis documents that greater search activity prior to earnings announcements is positively associated with future market reaction to earnings announcements, pre-earnings announcement drift, and buying pressure. The results are consistent with investors gathering value-relevant information through online research, which is subsequently incorporated into prices through trading around earnings announcements. Notably, search volume is positively associated with market reaction to earnings announcements and pre-announcement drifts for more obscure firms where data is scarce. Overall, this paper provides large-sample evidence validating theoretical models where dispersed private information is incorporated into stock prices. The findings suggest that broader data access may facilitate pricing efficiency by promoting more informed market participation.