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Information demand and stock return predictability

Chronopoulos, DK and Vlastakis, N and Papadimitriou, FI (2018) 'Information demand and stock return predictability.' Journal of International Money and Finance, 80. 59 - 74. ISSN 0261-5606

1-s2.0-S0261560617301912-main.pdf - Accepted Version

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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.

Item Type: Article
Uncontrolled Keywords: Return sign predictability; Information demand; Investor attention; Volatility forecast; Economic value
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 13 Oct 2017 14:31
Last Modified: 06 Apr 2019 01:00

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