Which fear index matters for predicting US stock market volatilities: Text-counts or option based measurement?

Sha Zhu, Qiuhong Liu, Yan Wang, Yu Wei and Guiwu Wei

Physica A: Statistical Mechanics and its Applications, 2019, vol. 536, issue C

Abstract: Although VIX has long been recognized as an index to measure fear sentiment in US stock markets, a set of similar measurements called Equity Market Volatility (EMV) trackers are newly created based on the text-counts of newspaper articles including several keywords related to US economy or stock market volatility. In this paper, we use GARCH-MIDAS method to quantify the in-sample explanatory and out-of-sample predictive powers of these two kinds of fear indices in US stock markets. Our empirical results show that VIX has larger in-sample impacts on US stock market volatility than EMV trackers. However, the out-of-sample volatility predictive performances of EMV trackers are generally superior to VIX across different US stock indices and prediction time horizons. In addition, policy-related EMV tracker acts better than VIX and other EMV trackers in predicting volatilities of US stock markets.

Keywords: US stock market; VIX; Equity market volatility trackers; Volatility forecasting (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437119314645
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

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:phsmap:v:536:y:2019:i:c:s0378437119314645

DOI: 10.1016/j.physa.2019.122567

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().