We study the relationship between investors' active attention, measured by a Google search volume index (SVI), and the dynamics of currency prices. Investor attention is correlated with the trading activities of large FX market participants. Investor attention comoves with comtemporaneous FX market volatility and predicts subsequent FX market volatility, after controlling for macroeconomic fundamentals. In addition, investor attention is related to the currency risk premium. Our results suggest that investor attention is a priced source of risk in FX markets.

We study the relationship between investors' active attention, measured by a Google search volume index (SVI), and the dynamics of currency prices. Investor attention is correlated with the trading activities of large FX market participants. Investor attention comoves with comtemporaneous FX market volatility and predicts subsequent FX market volatility, after controlling for macroeconomic fundamentals. In addition, investor attention is related to the currency risk premium. Our results suggest that investor attention is a priced source of risk in FX markets.

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We construct a measure of individual investors' speculative demand for stocks from their online queries on penny stocks provided by Google Search volume index (hereafter "SVI"). We examine how such speculative demand relates to the return dynamics of U.S. stock indices. We find that the speculative demand leads to a short-term return reversal. We build a simple trading strategy that sells a stock index when SVI is high and buys the stock index otherwise. It generates annual excess returns of up to 20% over the buy-and-hold strategy. Applying the trading strategy to the corresponding ETFs and index futures yields similar results.Transaction costs and liquidity risk can partially explain the excess returns. Strong time variation of the excess returns imposes additional limits to arbitrage.

No abstract