The information content of sentiment indices in forecasting Value at Risk and Expected Shortfall: a Complete Realized Exponential GARCH-X approach

Antonio Naimoli

International Economics, 2023, vol. 176, issue C

Abstract: The aim of this paper is to investigate the impact of public sentiment on tail risk forecasting. In this framework, we extend the Realized Exponential GARCH model to directly incorporate information from realized volatility measures and exogenous variables, thus resulting in a novel dynamically complete specification denoted as the Complete REGARCH-X model. Several sentiment indices related to social media and journal articles regarding the economy and stock market volatility are considered as potential drivers of volatility dynamics. An application to the prediction of daily Value-at-Risk and Expected Shortfall for the Standard & Poor’s 500 index provides evidence that combining the information content of realized volatility and sentiment measures can lead to significant accuracy gains in forecasting tail risk.

Keywords: Realized Exponential GARCH; Sentiment indices; Economic policy uncertainty; Tail risk forecasting; Risk management (search for similar items in EconPapers)
JEL-codes: C22 C53 C58 D80 E66 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:176:y:2023:i:c:s2110701723000719

DOI: 10.1016/j.inteco.2023.100459

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