Stock Market Volatility and Public Information Flow: A Non-linear Perspective

43 Pages Posted: 10 May 2021

See all articles by Kristoffer Pons Bertelsen

Kristoffer Pons Bertelsen

CREATES; Department of Economics

Daniel Borup

Aarhus University, CREATES, DFI

Johan Stax Jakobsen

CREATES; Copenhagen Business School

Date Written: May 7, 2021

Abstract

The relationship between the level of stock market volatility and public information flow is non-linear, resembling a bell-shaped function. Medium levels of information flow generate heightened volatility, whereas weak and strong information flow do not, regardless of whether news are negative or positive. This novel empirical finding is established in a new realized GARCH model with time-varying intercept, measuring changes in the overall volatility level, which is governed by a new measure of daily macroeconomic news flow. We also device a test for model specification. States of medium information flow are characterized by elevated disagreement about the future stance of the economy compared to states of weak or strong information flow, such that our findings are explained by disagreement equilibrium-based models. We confirm our findings on international data.

Keywords: News analytics, mixture-distribution hypothesis, realized GARCH, smooth transitioning, stock market volatility, GARCH-MIDAS

JEL Classification: C58, G12, G14, G15

Suggested Citation

Bertelsen, Kristoffer Pons and Borup, Daniel and Jakobsen, Johan Stax, Stock Market Volatility and Public Information Flow: A Non-linear Perspective (May 7, 2021). Economics Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3841432

Kristoffer Pons Bertelsen

CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Department of Economics ( email )

Fuglesangs Allé 4
Aarhus V
Denmark

Daniel Borup (Contact Author)

Aarhus University, CREATES, DFI ( email )

School of Business and Social Sciences
Fuglesangs Alle 4
Aarhus V, 8210
Denmark

Johan Stax Jakobsen

CREATES ( email )

Department of Economics and Business Economics
Fuglesangs Allé 4
Aarhus V, 8210
Denmark
+4529807641 (Phone)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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