Economic Externalities of Autocomplete: Evidence of Exploratory Behavior in Financial Markets

Individuals increasingly rely on automatic mechanisms (commonly termed "autocomplete") to suggest quick completion of their input text. In this research we test for autocomplete’s economic effects. Theory on exploratory behavior suggests that autocomplete can facilitate diversion of the users from their initially intended text to the new terms that appear in the domain and are suggested by autocomplete. We analyze whether such diversions make an economic impact in terms of transaction loss and whether such diversions are substantial enough to compromise price efficiencies. We test our hypotheses in the context of the financial industry by analyzing changes in turnover and returns following the introduction of a new security (ticker). Consistent with the transaction-loss hypothesis, we provide evidence that upon ticker introduction, turnover of securities that are syntactically similar to the new introduced security is significantly reduced by 3%-5% around the starting day of trade of the new security. We also find that despite this short-term diversion, price efficiency is not compromised. Autocomplete appears to have a significant economic effect on turnover, but not on pricing.