Volatility Forecasting: The Role of Internet Search Activity and Implied Volatility

Arabinda Basistha (), Alexander Kurov and Marketa Halova Wolfe

MPRA Paper from University Library of Munich, Germany

Abstract: Recent empirical literature shows that Internet search activity is closely associated with volatility prediction in financial and commodity markets. In this study, we search for a benchmark model with available market-based predictors to evaluate the net contribution of the Internet search activity data in forecasting volatility. We conduct in-sample analysis and window-size robust out-of-sample forecasting analysis in multiple markets for robust model validation. The predictive power of the Internet search activity data disappears in the financial markets and substantially diminishes in the commodity markets once the model includes implied volatility. A further common component analysis shows that most of the predictive information contained in the Internet search activity is also present in implied volatility while implied volatility has additional predictive information that is not contained in the Internet search activity data.

Keywords: Volatility forecasting; realized volatility; implied volatility; Internet search activity; Google Trends search volume index; information (search for similar items in EconPapers)
JEL-codes: C3 C32 C52 G12 G14 G17 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Volatility forecasting: the role of internet search activity and implied volatility
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:111037

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