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Investor attention and FX market volatility

Investor attention and FX market volatility
Investor attention and FX market volatility
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 contemporaneous 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.
investor attention, fx volatility, option pricing, garch
1042-4431
79-96
Goddard, John
09c31439-0c52-429a-8f02-64ab45fcba5f
Kita, Arben
fd98ff4d-435a-4b69-8a7f-13171bf5c1fc
Wang, Qingwei
d861d36f-45d3-4ca6-8e5e-a6930bfd12d8
Goddard, John
09c31439-0c52-429a-8f02-64ab45fcba5f
Kita, Arben
fd98ff4d-435a-4b69-8a7f-13171bf5c1fc
Wang, Qingwei
d861d36f-45d3-4ca6-8e5e-a6930bfd12d8

Goddard, John, Kita, Arben and Wang, Qingwei (2015) Investor attention and FX market volatility. Journal of International Financial Markets, Institutions and Money, 38, 79-96. (doi:10.1016/j.intfin.2015.05.001).

Record type: Article

Abstract

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 contemporaneous 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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Accepted/In Press date: 14 May 2015
e-pub ahead of print date: 19 May 2015
Published date: September 2015
Keywords: investor attention, fx volatility, option pricing, garch
Organisations: Southampton Business School
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Identifiers

Local EPrints ID: 380798
URI: http://eprints.soton.ac.uk/id/eprint/380798
DOI: doi:10.1016/j.intfin.2015.05.001
ISSN: 1042-4431
PURE UUID: 0abd0d51-0d51-4a0d-8b8b-318903428f96

Catalogue record

Date deposited: 21 Sep 2015 10:41
Last modified: 14 Mar 2024 21:05

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Contributors

Author: John Goddard
Author: Arben Kita
Author: Qingwei Wang

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