We relate Google search volumes, which are a proxy for the economic concerns of households (the FEARS index), to the trading behavior of approximately 100,000 individual German online-brokerage clients. We find that when the FEARS index is high, individual investors trade out of risky assets. Additionally, we find that the FEARS index has a negative short-horizon relation to stock market returns, which reverses over the following six days. This shows that the effect of economic concerns on the market is temporary, whereas on individual investors, the effect does not reverse within the next 20 days. In addition, we find that less sophisticated investors are more prone to sentiment.
Journal of Financial Markets, Vol. 49, Article 100544, 2020