Stock Market Volatility and Public Information Flow: A Non-linear Perspective

Kristoffer Pons Bertelsen, Daniel Borup*, Johan Stax Jakobsen

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

The relationship between the level of stock market volatility and public information flow is non-linear, resembling a bell-shaped function. Medium levels of information flow generate heightened volatility, whereas weak and strong information flows do not, regardless of whether news are negative or positive. This novel empirical finding is established in a new realized GARCH model with time-varying intercept, measuring changes in the overall volatility level, which is governed by a new measure of daily macroeconomic news flow. We also device a test for model specification. States of medium information flow are characterized by elevated disagreement about the future stance of the economy compared to states of weak or strong information flow, such that our findings are explained by disagreement equilibrium-based models. We confirm our findings on international data.
Original languageEnglish
Article number109905
JournalEconomics Letters
Volume204
Number of pages5
ISSN0165-1765
DOIs
Publication statusPublished - Jul 2021
Externally publishedYes

Keywords

  • News analytics
  • Mixture-distribution hypothesis
  • Realized GARCH
  • Smooth transitioning
  • Stock market volatility
  • GARCH-MIDAS

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