More attention and better volatility forecast accuracy: How does war attention affect stock volatility predictability?

Chao Liang, Lu Wang and Duy Duong

Journal of Economic Behavior & Organization, 2024, vol. 218, issue C, 1-19

Abstract: This paper aims to explore the impact of war attention on stock volatility predictability by constructing a new war attention index and employing an extended GARCH-MIDAS-ES model. The war attention index is developed by incorporating the Google search volume data for 56 war-related keywords using natural language processing methods and dimensionality reduction techniques. Since war attention is considered an exogenous shock, we modify the new extended MIDAS model by incorporating the extreme effects caused by war attention into the GARCH-MIDAS-ES framework. Compelling evidence demonstrates that our proposed war attention index is a statistically significant driver of S&P 500 volatility, and our extended model exhibits higher out-of-sample predictive accuracy as it captures both the normal and extreme effects of war attention on stock volatility within the MIDAS framework. By examining how war attention affects stock volatility predictability during the ongoing Russia–Ukraine war, we observe that the extended model's forecasting performance deteriorates as the forecasting horizon increases to a relatively large extent, which is in line with the findings of Andrei and Hasler (2015).

Keywords: Stock volatility; War attention; Volatility forecasting; GARCH-MIDAS (search for similar items in EconPapers)
JEL-codes: C58 D91 G40 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S016726812300447X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:218:y:2024:i:c:p:1-19

DOI: 10.1016/j.jebo.2023.12.009

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().