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The volatility of daily tug-of-war intensity and stock market returns

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Listed:
  • Bai, Fan
  • Zhang, Yaqi
  • Chen, Zhonglu
  • Li, Yan

Abstract

We examine the predictive role of the volatility of daily tug-of-war intensity (VDTWI) in stock market returns. Based on the empirical evidence in China, we show that VDTWI significantly and positively impacts stock market returns. Moreover, the out-of-sample forecasting of VDTWI also performs well. Results show that the model of VDTWI has an out-of-sample R-squared of 3.473% and great economic values, of which certainty equivalent return and Sharpe ratio gains are 8.683 and 0.630, respectively. Furthermore, combining the volatility of daily tug-of-war intensity and popular predictors can improve forecasting performance.

Suggested Citation

  • Bai, Fan & Zhang, Yaqi & Chen, Zhonglu & Li, Yan, 2023. "The volatility of daily tug-of-war intensity and stock market returns," Finance Research Letters, Elsevier, vol. 55(PA).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002398
    DOI: 10.1016/j.frl.2023.103867
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    More about this item

    Keywords

    Daily tug of war; Volatility of daily tug-of-war intensity; Return forecasting;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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