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Forecasting Financial Market Volatility Using a Dynamic Topic Model

Author

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  • Takayuki Morimoto

    (Kwansei Gakuin University)

  • Yoshinori Kawasaki

    (The Institute of Statistical Mathematics and SOKENDAI)

Abstract

This study employs big data and text data mining techniques to forecast financial market volatility. We incorporate financial information from online news sources into time series volatility models. We categorize a topic for each news article using time stamps and analyze the chronological evolution of the topic in the set of articles using a dynamic topic model. After calculating a topic score, we develop time series models that incorporate the score to estimate and forecast realized volatility. The results of our empirical analysis suggest that the proposed models can contribute to improving forecasting accuracy.

Suggested Citation

  • Takayuki Morimoto & Yoshinori Kawasaki, 2017. "Forecasting Financial Market Volatility Using a Dynamic Topic Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 24(3), pages 149-167, September.
    • Handle: RePEc:kap:apfinm:v:24:y:2017:i:3:d:10.1007_s10690-017-9228-z
    DOI: 10.1007/s10690-017-9228-z
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    2. Shasha Wang & Sheng Mai, 2024. "Study on the Theme Evolution and Synergy Assessment of China’s New Energy Vehicle Policy Texts," Sustainability, MDPI, vol. 16(17), pages 1-21, August.
    3. Yan Zhihua & Tang Xijin, 2020. "Exploring Evolution of Public Opinions on Tianya Club Using Dynamic Topic Models," Journal of Systems Science and Information, De Gruyter, vol. 8(4), pages 309-324, August.
    4. Ka Kit Tang & Ka Ching Li & Mike K P So, 2021. "Predicting standardized absolute returns using rolling-sample textual modelling," PLOS ONE, Public Library of Science, vol. 16(12), pages 1-28, December.
    5. Park, Eunhye & Park, Jinah & Hu, Mingming, 2021. "Tourism demand forecasting with online news data mining," Annals of Tourism Research, Elsevier, vol. 90(C).

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    More about this item

    Keywords

    Big data; Online news; Dynamic topic model; Topic score; Forecasting; Realized volatility;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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