Information demand and stock return predictability

Dimitris K. Chronopoulos, Fotios I. Papadimitriou, Nikolaos Vlastakis

Research output: Contribution to journalArticle

11 Citations (Scopus)
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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.
Original languageEnglish
Pages (from-to)59-74
Number of pages16
JournalJournal of International Money and Finance
Volume80
Early online date6 Oct 2017
DOIs
Publication statusPublished - Feb 2018

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Stock return predictability
Predictability
Investment strategy
Google
Generalized autoregressive conditional heteroscedasticity
Economic value
Investors
Asset returns
Stock returns
Volatility forecasts
World Wide Web

Keywords

  • Return sign predictability
  • Information demand
  • Investor attention
  • Volatility forecast
  • Economic value

Cite this

Information demand and stock return predictability. / Chronopoulos, Dimitris K.; Papadimitriou, Fotios I.; Vlastakis, Nikolaos.

In: Journal of International Money and Finance, Vol. 80, 02.2018, p. 59-74.

Research output: Contribution to journalArticle

Chronopoulos, Dimitris K. ; Papadimitriou, Fotios I. ; Vlastakis, Nikolaos. / Information demand and stock return predictability. In: Journal of International Money and Finance. 2018 ; Vol. 80. pp. 59-74.
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