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Forecasting realised volatility from search volume and overnight sentiment: Evidence from China

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Listed:
  • Wang, Ping
  • Han, Wei
  • Huang, Chengcheng
  • Duong, Duy

Abstract

From the perspective of investors' perception on financial market risk, we examine the performance of market search volume and market overnight sentiment in forecasting the realised volatility (RV) of the Shanghai SE Composite Index and 16 industry indexes in China. We find that market search volume has a significant positive impact on the future RV of all indexes, and market overnight sentiment also has a significantly positive coefficient for most indexes. The out-of-sample forecasting results show that the market search volume performs better than the market overnight sentiment. The predictive model based on these two sentiment-based variables has a better and more robust performance than competing models, and it performs well in predicting the three-month-ahead and six-month-ahead RVs. Our results indicate that market search volume and the market overnight sentiment have complementary market sentiment information.

Suggested Citation

  • Wang, Ping & Han, Wei & Huang, Chengcheng & Duong, Duy, 2022. "Forecasting realised volatility from search volume and overnight sentiment: Evidence from China," Research in International Business and Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:riibaf:v:62:y:2022:i:c:s0275531922001222
    DOI: 10.1016/j.ribaf.2022.101734
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    More about this item

    Keywords

    Realised volatility; Industry indexes; Market search volume; Market overnight sentiment;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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