Information demand and stock return predictability
Information demand and stock return predictability
Recent theoretical work suggests that signs of asset returns are predictable given that their volatilities are. This paper investigates this conjecture using information demand, approximated by the daily internet search volume index (SVI) from Google. Our results reveal that incorporating the SVI variable in various GARCH family models significantly improves volatility forecasts. Moreover, we demonstrate that the sign of stock returns is predictable contrary to the levels, where predictability has proven elusive in the US context. Finally, we provide novel evidence on the economic value of sign predictability and show that investors can form profitable investment strategies using the SVI.
Economic value, Information demand, Investor attention, Return sign predictability, Volatility forecast
59-74
Chronopoulos, Dimitris K.
5537b805-450f-4ef4-b3e3-116e5b50db3e
Papadimitriou, Fotios I.
e90e7f7a-0d8d-4fbb-9b08-729d2dd2e217
Vlastakis, Nikolaos
95a8c089-6b4c-4d6c-a8fa-5bacd04b6c97
1 February 2018
Chronopoulos, Dimitris K.
5537b805-450f-4ef4-b3e3-116e5b50db3e
Papadimitriou, Fotios I.
e90e7f7a-0d8d-4fbb-9b08-729d2dd2e217
Vlastakis, Nikolaos
95a8c089-6b4c-4d6c-a8fa-5bacd04b6c97
Chronopoulos, Dimitris K., Papadimitriou, Fotios I. and Vlastakis, Nikolaos
(2018)
Information demand and stock return predictability.
Journal of International Money and Finance, 80, .
(doi:10.1016/j.jimonfin.2017.10.001).
Abstract
Recent theoretical work suggests that signs of asset returns are predictable given that their volatilities are. This paper investigates this conjecture using information demand, approximated by the daily internet search volume index (SVI) from Google. Our results reveal that incorporating the SVI variable in various GARCH family models significantly improves volatility forecasts. Moreover, we demonstrate that the sign of stock returns is predictable contrary to the levels, where predictability has proven elusive in the US context. Finally, we provide novel evidence on the economic value of sign predictability and show that investors can form profitable investment strategies using the SVI.
This record has no associated files available for download.
More information
e-pub ahead of print date: 6 October 2017
Published date: 1 February 2018
Keywords:
Economic value, Information demand, Investor attention, Return sign predictability, Volatility forecast
Identifiers
Local EPrints ID: 434983
URI: http://eprints.soton.ac.uk/id/eprint/434983
ISSN: 0261-5606
PURE UUID: 34e6cf0d-b877-4c22-9f3e-396fab4a8c96
Catalogue record
Date deposited: 17 Oct 2019 16:30
Last modified: 16 Mar 2024 04:36
Export record
Altmetrics
Contributors
Author:
Dimitris K. Chronopoulos
Author:
Fotios I. Papadimitriou
Author:
Nikolaos Vlastakis
Download statistics
Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.
View more statistics