Sentiment and Asset Volatility Dynamics: A Content Analysis Approach

27 Pages Posted: 8 Jul 2014

See all articles by Yanlin Shi

Yanlin Shi

Macquarie University

Kin-Yip Ho

The Australian National University - School of Finance, Actuarial Studies and Applied Statistics, College of Business and Economics

Wai-Man Liu

Australian National University

Date Written: September 1, 2013

Abstract

This paper analyses the effects of news on the so-called 'idiosyncratic volatility puzzle'. By empirically modelling the stock return data from the Center for Research in Security Prices (CRSP) database from 2000 to 2011, we firstly find that idiosyncratic volatility has a positive effect on excess return. Existing studies suggest that both the quantity and quality of public information arrival (news flow) can significantly induce the stock return volatility. Following this idea, we employ various models to control for the potential news effects on the idiosyncratic volatility and re-visit this puzzle. Our empirical results suggest that when quantity, relevance and quality of news are all properly controlled for, the average magnitude of the idiosyncratic volatility effect on excess return can be reduced by roughly 50 percent.

Keywords: Idiosyncratic Volatility, Cross-sectional Returns, Public Information Arrival, News Sentiment

JEL Classification: G12, G14

Suggested Citation

Shi, Yanlin and Ho, Kin-Yip and Liu, Wai-Man, Sentiment and Asset Volatility Dynamics: A Content Analysis Approach (September 1, 2013). Available at SSRN: https://ssrn.com/abstract=2463532 or http://dx.doi.org/10.2139/ssrn.2463532

Yanlin Shi (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Kin-Yip Ho

The Australian National University - School of Finance, Actuarial Studies and Applied Statistics, College of Business and Economics ( email )

Canberra, Australian Capital Territory 0200
Australia

Wai-Man Liu

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://www.cbe.anu.edu.au/about/staff-directory/?profile=Wai-Man%20(Raymond)-Liu

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
52
Abstract Views
408
Rank
326,270
PlumX Metrics