Hedging performance using google Trends–Evidence from the indian forex options market

Tsung-Li Chi, Hung-Tsen Liu and Chia-Chien Chang

International Review of Economics & Finance, 2023, vol. 85, issue C, 107-123

Abstract: This study examines whether Google Trends can improve hedging performance by incorporating 15 search queries provided by Bulut (2018) into the exchange rate volatility model and hedging strategy in the Indian options market. Results show that Google Trends can enhance volatility prediction and that price-related search queries have the best forecasting ability. The hedging performances of USD-INR options incorporating 15 search queries or “PCA5” perform better than existing investor sentiment indices. An asymmetric effect of search queries is also found for hedging performance. Additionally, the constructed index “PCA5”, which contains all the information from 15 search queries, also achieves a better hedging effect compared to other search queries, except for price-related search queries ("prices" and "cheap") and liquidity-related search queries ("cash" and "credit").

Keywords: Exchange rate; Google trends; Hedging performance; Indian forex option market (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:85:y:2023:i:c:p:107-123

DOI: 10.1016/j.iref.2023.01.003

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