Are option traders more informed than Twitter users? A PVAR analysis

Alex Frino, Caihong Xu and Z. Ivy Zhou

Journal of Futures Markets, 2022, vol. 42, issue 9, 1755-1771

Abstract: Prior research has examined whether Twitter information predicts stock returns and volatility. We study the causality between Twitter information, stock‐realized volatility, and option‐implied volatility using a panel vector autoregressive model. Using panel data on S&P/ASX 200 stocks, we reveal a bidirectional causality between realized volatility and Twitter activity and divergence of opinion. We also find strong evidence of causality from implied idiosyncratic volatility to Twitter activity, sentiment, and divergence of opinion. Our results highlight the role of the options market in predicting Twitter information and monitoring social media flows to prevent the spread of fake news.

Date: 2022
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