Predicting Amazon Stock PricesBy: Josh Kiblinger

Purpose: •Amazon, is an American electronic commerce and cloud computing company with headquarters in Seattle, Washington. It is the largest Internet-based retailer in the United States. It started out as an online book seller and later diversified into a variety of consumer-related products, including electronics, music, videos, toys and much more.•For online retailers, web searches for a company are often equated with increased sales revenue, market share, and profits. •The purpose of this study was to predict Amazon stock prices using the Google Trends searchs on “Amazon.com.” Google Trends provides an index of the popularity of particular web search terms.

Previous Literature

• The Relevance of Web Traffic for Internet Stock Prices by Shivaram Rajgopal, Suresh Kotha, and Mohan Venkatachalam.

In their paper they mentioned that “without traffic and a critical mass of visitors it is impossible to build customer relationship.” Consumer relationship is extremely important when determining if you are going to remain a viable as a company.

The literature is fairly sparse given that google trends has only been around since 2004.

• A working paper entitled Predictability of stock market activity using Google search queries by Pedro Latoeiro, Sofia B. Ramos and Helena Veiga

There paper analyzes whether web search queries predict stock market activity in a sample of the largest European stocks. They suggest that an increase in web searches for stocks on GoogleTrends is followed by a temporary increase in volatility and volume and a drop in cumulative returns.

My DataI gathered from multiple sources:

• google trends on the search term “amazon.com” and other close competitors both internet based and brick-and-mortar stores.

• Amazon.com stock price from yahoofinance.com

• I included the Russell 3000 index to control for the overall movements of the stock market.

• I created a seasonal dummy variables (DEC) to check for seasonality since Amazon is a retailer…you know…holiday shopping!

• I created a recession dummy for recession months during the timeframe of my data.

• The inflation rate and unemployment rate was obtained from the Bureau of the Census to control for overall economic conditions.

• Finally, I included a trend variable (T) and squared it (T2) to account for an obvious upward-bending trend in the data.

Descriptive StatisticsVariable N Mean Std Dev Minimum MaximumDate 144 17516.46 1691.35 14610 20423T 144 96.5 55.569776 1 192T2 144 12384.17 11073.08 1 36864Dec 144 0.0833333 0.277108 0 1AmazonAdjClose 144 134.225144 139.167847 5.97 675.890015BookStoreSales 144 1233.15 458.122258 653 2423RecessionMonth 144 0.1145833 0.3193512 0 1amazon_com 144 42.6788194 14.3735827 17 85.75BarnesNoble 144 2.7288194 1.0281625 1 6.25ebay 144 70.3152778 11.5732983 43.8 94.25BestBuy 144 9.1979167 3.1451977 6 19Chegg 144 9.8690972 13.0629059 0 69Russell3000 144 773.056407 202.123017 424.880005 1259.26InflationRate 144 2.2370521 1.3530983 -1.959 5.501UnemploymentRate 144 6.3036458 1.7752921 3.8 10

• Amazon.com’s adjusted close ranges from a low of $5.97 to a high of $675.89 with an average value of $134.23

• Unemployment during this period ranged from 3.8% to 10% for the U.S. The average was 6.3%

• Monthly inflation rates range from -2% to +5.5%, averaging 2.2% for the nation

• The Russell3000 ranged from 424 to 1,259, averaging 773 over the period.

Amazon.com historic stock prices$675.89

$5.97

First DifferenceLevels On the left is the regression on the original

data. On the right is with the first difference approach, used because the DW indicated serial correlation.

Without using the first difference approach, this model explains 94.25% of variation in Amazon stock price, but R2 is likely overstated.

When using the first difference approach, this model successfully explains 25.27% of variation in Amazon stock price and potential for both serial correlation and heteroscedasticity is reduced.

Estimates

Conclusions• For Amazon.com, the

change in searches on the term has no significant impact on the change in stock prices…doesn’t support earlier research.

• Major competitors’ stock prices are not good predictors of Amazon’s.

• The best predictors include the overall movements in the stock market, measured by the Russell3000 index and the unemployment rate. Variables depicting the economy overall appears to be the best predictors.

• Amazon’s stock price apparently is negatively affected during the holidays…possibly due to the fact that the last few holiday seasons have resulted in lower than expected sales overall.