Information demand and stock return predictability
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.
Citation
Chronopoulos , D K , Papadimitriou , F I & Vlastakis , N 2018 , ' Information demand and stock return predictability ' , Journal of International Money and Finance , vol. 80 , pp. 59-74 . https://doi.org/10.1016/j.jimonfin.2017.10.001
Publication
Journal of International Money and Finance
Status
Peer reviewed
ISSN
0261-5606Type
Journal article
Collections
Items in the St Andrews Research Repository are protected by copyright, with all rights reserved, unless otherwise indicated.