Internet Searches, Household Sentiment, and Credit Spreads

We use Google internet search volumes to measure households’ pessimism about overall market-wide credit health in the economy and show that this “household default sentiment” is positively correlated with swap (CDS) spread level market. However, while household sentiment might drive cost of some degree, either directly or indirectly through its effect on stock market, we find market’s opinion risk (default probabilities backed out from structural models) be much more important explaining spreads. The rather weak link between CDS spreads, meanwhile, consistent almost complete absence retail investors (households) institutional investor-dominated derivatives results are essentially same, whether look at indexes single-name contracts, exclude financial crisis not.