Drivers of Realized Volatility for South Africa (and the BRIC Countries): Fundamentals versus Sentiment

Rangan Gupta, Jacobus Nel () and Christian Pierdzioch
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Jacobus Nel: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202303, Working Papers from University of Pretoria, Department of Economics

Abstract: We use a quantile machine learning (random forests) approach to analyze the predictive ability of newspapers-based Macroeconomic Attention Indexes (MAIs) on eight major fundamentals of the United States on the realized volatility of a major commodity exporting emerging stock market, namely South Africa. We compare the performance of the MAIs with the performance of a News Sentiment Index (NSI) of the US. We find that both fundamentals and sentiment improve predictive performance, but the relative impact of the former is stronger. We document how the impact of fundamentals and sentiment on predictive performance varies across the quantiles of the conditional distribution of realized volatility, and across different prediction horizons. In addition, we report several robustness checks, and check whether the obtained results for South Africa tend to carry over to other emerging countries such as, Brazil, China, India, and Russia. Our results have important implications for not only investors, but also policymakers.

Keywords: Stock markets; Realized volatility; Macroeconomic attention; Sentiment; Quantile random forests; Prediction Models; BRICS countries (search for similar items in EconPapers)
JEL-codes: C22 C53 E00 G15 G41 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2023-02
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202303

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