The volatility of daily tug-of-war intensity and stock market returns

Fan Bai, Yaqi Zhang, Zhonglu Chen and Yan Li

Finance Research Letters, 2023, vol. 55, issue PA

Abstract: We examine the predictive role of the volatility of daily tug-of-war intensity (VDTWI) in stock market returns. Based on the empirical evidence in China, we show that VDTWI significantly and positively impacts stock market returns. Moreover, the out-of-sample forecasting of VDTWI also performs well. Results show that the model of VDTWI has an out-of-sample R-squared of 3.473% and great economic values, of which certainty equivalent return and Sharpe ratio gains are 8.683 and 0.630, respectively. Furthermore, combining the volatility of daily tug-of-war intensity and popular predictors can improve forecasting performance.

Keywords: Daily tug of war; Volatility of daily tug-of-war intensity; Return forecasting (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:55:y:2023:i:pa:s1544612323002398

DOI: 10.1016/j.frl.2023.103867

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