This paper proposes a novel measure of economic uncertainty based on the frequency of internet searches. The theoretical motivation is offered by findings in economic psychology that agents respond to increased uncertainty by intensifying their information search. The main advantages of using internet searches are broad reach, timeliness and the fact that they reflect actions, rather than words, which however are not directly related to the stock market. The search-based uncertainty measure compares well against a peer group of alternative indicators and is shown to have a significant relationship with aggregate stock returns and volatility. Abstract: This paper proposes a novel measure of economic uncertainty based on the frequency of internet searches. The theoretical motivation is offered by findings in economic psychology that agents respond to increased uncertainty by intensifying their information search. The main advantages of using internet searches are broad reach, timeliness and the fact that they reflect actions, rather than words, which however are not directly related to the stock market. The search-based uncertainty measure compares well against a peer group of alternative indicators and is shown to have a significant relationship with aggregate stock returns and volatility.Measuring economic uncertainty and its impact on the stock market. AbstractThis paper proposes a novel measure of economic uncertainty based on the frequency of internet searches. The theoretical motivation is offered by findings in economic psychology that agents respond to increased uncertainty by intensifying their information search. The main advantages of using internet searches are broad reach, timeliness and the fact that they reflect actions, rather than words, which however are not directly related to the stock market. The search-based uncertainty measure compares well against a peer group of alternative indicators and is shown to have a significant relationship with aggregate stock returns and volatility.

The paper is the first one outside the high-frequency domain to use sentiment-signed news to directly compare news and no-news stock returns. This is done by estimating whether returns on positive, neutral and negative news days are significantly different from the average daily return for a large sample of US stocks over the period from January 2003 to August 2010. The general results show that positive news days indeed have above-average returns and negative news days returns are below average, while the neutral news days are economically barely distinguishable from the average. The market also proves to be fast and accurate at pricing new information, as there are no signs of drift shortly after news days. On the contrary, a directionally correct and statistically significant movement can be found on the day before the news day. The cross-sectional analysis reveals significant differences in the strength of market reactions between stocks ranked on size, book-to-market or news coverage. The general results however hold across all subsamples and are also not driven by earnings announcements or past stock returns. Moreover, the average news sensitivity is itself a priced source of risk. A portfolio of stocks with high sensitivity to news outperforms a portfolio of stocks with low sensitivity by a statistically and economically significant 0.84% per month. This news premium seems to primarily relate to the high impact of news in situations of general uncertainty.Electronic copy available at: http://ssrn.com/abstract=1889030News sensitivity and the cross-section of stock returns. * Michal DzielinskiUniversity of Zurich, Department of Banking and Finance July 2011Abstract The paper is the first one outside the high-frequency domain to use sentiment-signed news to directly compare news and no-news stock returns. This is done by estimating whether returns on positive, neutral and negative news days are significantly different from the average daily return for a large sample of US stocks over the period from January 2003 to August 2010. The general results show that positive news days indeed have above-average returns and negative news days returns are below average, while the neutral news days are economically barely distinguishable from the average. The market also proves to be fast and accurate at pricing new information, as there are no signs of drift shortly after news days. On the contrary, a directionally correct and statistically significant movement can be found on the day before the news day. The cross-sectional analysis reveals significant differences in the strength of market reactions between stocks ranked on size, book-to-market or news coverage. The general results however hold across all subsamples and are also not driven by earnings announcements or past stock returns. Moreover, the average news sensitivity is itself a priced source of risk. A portfolio of stocks with high sensitivity to news outperforms a portfolio of stocks with low sensitivity by a statistically and economically significan...

Analyzing a large sample of U.S. firms, we show that the asymmetry of stock return volatility is positively related to investor attention and differences of opinion.Using the number of analysts following a given firm to capture attention and the dispersion in analyst forecasts as a common proxy for differences of opinion, we show that the two effects are complementary. Furthermore, the effect of attention is strongest among stocks with low institutional ownership and high idiosyncratic volatility. Our results are robust to the traditional "leverage effect" explanation of volatility asymmetry. The findings relate to the previously documented relationship between attention and volatility and suggest that volatility asymmetry is driven by asymmetric attention.JEL classification: G11,G12,G14.

At least one co-author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w23425.ack NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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