Media Coverage and Decomposition of Stock Market Volatility:Based on the Generalized Dynamic Factor Model

Haishu Qiao and Yaya Su

Emerging Markets Finance and Trade, 2020, vol. 56, issue 3, 613-625

Abstract: This paper decomposes stock volatility into a market-driven component and an idiosyncratic component using the generalized dynamic factor model and then investigates the influence of media coverage on them. Based on the Baidu Media Index and composite stock data in the CSI 300 Index, we found that the influence of media coverage on market-driven volatility appears to be U-shaped, but the influence on idiosyncratic volatility is negative. Our results show that, in China, the news media generally play a role as information providers on the stock market. However, when the stock market is in a volatile period, media coverage exacerbates that volatility.

Date: 2020
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DOI: 10.1080/1540496X.2019.1686974

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