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Predicting the Present - PowerPoint PPT Presentation
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With Google Trends. Predicting the Present. Hyunyoung Choi Hal Varian June 2009. Problem statement. Government agencies and other organizations produce monthly reports on economic activity Retail Sales House Sales Automotive Sales Unemployment Problems with reports
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Presentation Transcript
- Government agencies and other organizations produce monthly reports on economic activity
- Retail Sales
- House Sales
- Automotive Sales
- Unemployment
Problems with reports
- Compilation delay of several weeks
- Subsequent revisions
- Sample size may be small
- Not available at all geographic levels
Google Trends releases daily and weekly index of search queries by industry vertical
- Real time data
- No revisions (but some sampling variation)
- Large samples
- Available by country, state and city
Can Google Trends data help predict current economic activity?
- Before release of preliminary statistics
- Before release of final revision
2
Categories in Google Trends by Query Shares
Note: Queries from 2009-01-01 to 2009-04-30 & Growth Comparison w/ the same time window
3
Home Insurance
Home Inspections & Appraisal
Real Estate Agencies
Home Financing
Rental Listings & Referrals
Subcategories under Real Estate by Query Shares
6
Depicting trends
- Google Trends measures normalizedquery share of particular category of queries – controls for overall growth
- Often useful to look at year-on-year changes to eliminate seasonality.
- Illustrate correlations and covariates.
- Improving predictions
- Forecast time series using its own lagged values and add Trends data as a predictor.
- Statistical significance?
- Improved fit?
- Improved forecasts?
- Identify turning points?
9
- Basic forecasting models
- Autoregressive: value at time t depends on
- Value at time t-1
- Seasonal adjustment: value at time t depends on
- Value at time t-12
- For monthly data
- Transfer function: value at time t depends on
- Other contemporaneous or lagging variables
- Seasonal autoregressive transfer model: Value at time t depends on
- Value at time t-12 (seasonality)
- Value at time t-1 (recent behavior)
- Other lagging or contemporaneous variables (such as Google Trends data)
- Typical question of interest
- How much more accurate forecasts can you get from additional variables over and above the accuracy you get with the history of the time series itself?
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Model
New Home Sales
- Recent Search Activity on
- Real Estate Agencies
- Rental Listings & Referrals
- Home Inspections & Appraisal
- Property Management
- Home Insurance
- Home Financing
Exogenous Variables
Housing affordability with Average/Median Home Price
Time Series
Recent Trend with New Home Sales at t-1
Seasonality with New Home Sales at t-12
Google Trends
New Residential Sales from US Census
Google Trends Real Estate by Category
- Monthly release 24 – 28 days after the month
- Seasonally adjusted
- National and Regional aggregate
- Home Inspections & Appraisal
- Home Insurance
- Home Financing
- Property Management
- Rental Listings & Referrals
- Real Estate Agencies
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Model:
Yt = 446.1 + 0.864 * Yt - 1 – 4.340 * us378.1 + 4.198 * us96.2 – 0.001 * AvgPt – 1
Yt : New house sold at t-th month
AvgPt – 1: Average Sales Price of New One-Family Houses Sold at (t-1)-th month
us378.1 : Google Trend of vertical id = 378 (Rental Listings & Referrals ) at t-th month 1st week
us96.2 : Google Trend of vertical id = 96 (Real Estate Agent) at t-th month 2nd week
July 2008
Actual = 515K
Predicted = 442.98K
Z-score = 2.53
August 2008 Prediction = 417.52K
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- Observations
- Since 2005 new house sales have been decreasing, with little seasonality
- Google Trends captures seasonality & recent trends
- Positive association with Real Estate Agencies (96)
- Negative association with Rental Listings & Referrals (378) and Average Price
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Bus & Rail
Cruises & Charters
Attractions & Activities
Car Rental & Taxi Services
Hotels & Accommodations
Air Travel
Vacation Destinations
Subcategories under Travel by Query Shares
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Visitors Arrival Statistics from Hong Kong Tourism Board
Google Trends Travel by Category
- Monthly summaries release with 1 month lag
- Reports Country/Territory of Residence of visitors
- Data available 2004-2008
- Hotels & Accommodations
- Air Travel
- Car Rental & Taxi Services
- Cruises & Charters
- Attractions & Activities
- Vacation Destinations
- Australia
- Caribbean Islands
- Hawaii
- Hong Kong
- Las Vegas
- Mexico
- New York City
- Orlando
- Adventure Travel
- Bus & Rail
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Model:
log(Yi,t) = 0.664 + 0.113 * log(Yi,t-1) + 0.828 * log(Yi,t-12) + 0.001 * Xi,t,2 + 0.001 * Xi,t,3
+ 0.005 * FXrate i,t + ηi, + ei,t
ei,t ~ N(0, 0.09382), ηi ~ N(0, 0.02282)
Yi,t = Arrival to Hong Kong at month t and from i-th country
Xi,t,1 = Google Trend Search at 1st week of month t and from i-th country
Xi,t,2 = Google Trend Search at 2nd week of month t and from i-th country
Xi,t,3 = Google Trend Search at 3rd week of month t and from i-th country
FXrate i,t = Hong Kong Dollar per one unit of i-th country’s local currency at month t. Average of first week’s FX rate is used as a proxy to FX rate per each month.
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- Conclusion
- Arrival at time t is positively associated with arrival at time t-1 and arrival at time t-12.
- It shows strong seasonality and autocorrelation
- Arrival at time t is positively associated with searches on [Hong Kong].
- Arrival at time t is positively associated with FX rates.
- When the local currency appreciates relative to Hong Kong Dollar, visitors to Hong Kong increase.
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US Auto Sales by Make
Google Trends under Vehicle Brands Category
- Monthly summaries released 1 week after end of month
- Data available by Car Sales, Truck Sales and Total Sales for each make
- Data available from 2003-2008
- Source: Automotive News Data Center
- Google Trends subcategory Vehicle Brands.
- Weekly Search query index
- Total 31 verticals in this subcategory
- 27 verticals matching to Monthly Sales available
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Google Categories under Vehicle Brands
NOTE: Area represents the queries volume from first half year 2008 and the color represents queries yearly growth rate
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Auto Sales by Make (Top 9 Make by Sales) Monthly Sales vs. Google Trends at Second Week of each month
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Fixed effects model:
log(Yi,t) = 2.4276 + 0.2552 * log(Yi,t-1) + 0.4930 * log(Yi,t-12)
+ 0.0005 * Xi,t,2 + 0.0014 * Xi,t,2 + ai * Makei + ei,t
ei,t ~ N(0, 0.13472) , Adjusted R2 = 0.9829
Yi,t = Auto Sales of i-th Make at month t
Xi,t,1 = Google Trend Search at 1st week of month t and from i-th make
Xi,t,2 = Google Trend Search at 2nd week of month t and from i-th make
Makei =Dummy variable for Auto Make
ai = Coefficient to capture the mean level of Auto Sales by Make
ANOVA Table
Df Sum Sq Mean Sq F value Pr(>F)
trends1 1 12.89 12.89 710.3542 < 2e-16 ***
trends2 1 0.05 0.05 2.7987 0.09455 .
log(s1) 1 1532.95 1532.95 84452.7530 < 2e-16 ***
log(s12) 1 24.07 24.07 1325.9741 < 2e-16 ***
as.factor(brand) 26 3.34 0.13 7.0696 < 2e-16 ***
Residuals 1480 26.86 0.02
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- Conclusion
- Sales at time t are positively associated with Sales at time t-1 and Sales at time t-12.
- Sales show strong seasonality and autocorrelation
- Monthly Sales are positively correlated to the first and second weeks search volume of each month.
- If the search volume increase by 1%, the sales volume will increase by an average of 0.19%.
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YoY Growth in Initial Claims & Google Search
According to the NBER, the current recession started December 2007.
National unemployment rate passed 5% in mid 2008 and search queries on [Welfare and Unemployment] also increased at same time.
Model
Signif. codes: 0.001 ‘***’ 0.05 ‘**’ 0.01 ‘*’
Reference ARIMA(0,1,1) X (1,0,0)12 Model
ARIMA(0,1,1) X (1,0,0)12 Model With Google Trends
Model Fit improved significantly – smaller Standard deviation, high log likelihood and smaller AIC
Initial Claims are positively correlated with searches on Jobs and Welfare.
Long Term Model: Prediction Comparison with MAE
With Google Trends, the out-of-sample prediction MAE decreases by 16.84%.
Prediction with rolling window from 1/11/2009 to 4/12/2009
Prediction Error at t:
Mean Absolute Error:
Short Term Model: Prediction Comparison with MAE
With Google Trends, the out-of-sample prediction MAE decreases by 19.23%.
Prediction errors are within the same range as LT Model.
Fit improvement is better with ST Model.
Summary
Google Trends significantly improves out-of-sample prediction of state unemployment, up to 18 days in advance of data release.
Mean absolute error for out-of-sample predictions declines by 16.84% for LT Model and 19.23% for ST Model.
Further work
Can examine metro level data
Other local data (real estate)
Combine with other predictors
Detect turning points?
