Information demand and stock market volatility

Nikolaos Vlastakis and Raphael Markellos

Journal of Banking & Finance, 2012, vol. 36, issue 6, 1808-1821

Abstract: We study information demand and supply at the firm and market level using data for 30 of the largest stocks traded on NYSE and NASDAQ. Demand is approximated in a novel manner from weekly internet search volume time series drawn from the recently released Google Trends database. Our paper makes contributions in four main directions. First, although information demand and supply tend to be positively correlated, their dynamic interactions do not allow conclusive inferences about the information discovery process. Second, demand for information at the market level is significantly positively related to historical and implied measures of volatility and to trading volume, even after controlling for market return and information supply. Third, information demand increases significantly during periods of higher returns. Fourth, analysis of the expected variance risk premium confirms for the first time empirically the hypothesis that investors demand more information as their level of risk aversion increases.

Keywords: Information demand; Financial markets; Volatility; Risk aversion (search for similar items in EconPapers)
JEL-codes: C32 D83 G12 G14 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (242)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:6:p:1808-1821

DOI: 10.1016/j.jbankfin.2012.02.007

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