Investor attention and FX market volatility

Abstract

We study the relationship between investors' active attention, measured by a Google search volume index (SVI), and the dynamics of currency prices. Investor attention is correlated with the trading activities of large FX market participants. Investor attention comoves with comtemporaneous FX market volatility and predicts subsequent FX market volatility, after controlling for macroeconomic fundamentals. In addition, investor attention is related to the currency risk premium. Our results suggest that investor attention is a priced source of risk in FX markets.

Investor sentiment and the Chinese index futures market: Evidence from the internet search

“…The CSI 300 index futures market is the most important futures market in China. Prior studies argue that the search volume index indicates the sentiment of an individual investor instead of an institutional investor (Da, Engelberg, & Gao , Goddard & Kita, ). And there are a high proportion of individual investors in the CSI 300 index futures market.…”

“…By using trader position as a proxy for sentiment, Wang () shows that small trader sentiment hardly forecasts future market movements. Goddard and Kita () argue that significant differences exist between the futures and stock markets regarding the purpose of trade, the composition of investors, and their trading habits. Therefore, this study aims to determine whether the conclusion in the global futures markets holds for the Chinese futures market where individual investors participate actively.…”

Does Nuclear Uncertainty Threaten Financial Markets? The Attention Paid to North Korean Nuclear Threats and Its Impact on South Korea's Financial Markets

“…Previous studies also apply the SVI measure to various fields in finance. Goddard et al () and Smith () introduce SVI to measure the intensity of the global financial crisis and investigate its effect on the foreign exchange market.…”

Building News Measures from Textual Data and an Application to Volatility Forecasting

“…Recent studies have shown that online search activity is also associated with volatility and returns in the financial, commodity, and exchange-rate markets. (See Da et al (2011) and Vlastakis and Markellos (2012) for individual stocks; Andrei and Hasler (2015), Dimpfl and Jank (2016), and Hamid and Heiden (2015) for stock indexes; Vozlyublennaia (2014) for stock and bond indices, gold, and crude oil; Da et al (2015) for stock indices, the VIX volatility index, and equity and Treasury bonds mutual funds; Guo and Ji (2013) for crude oil; and Smith (2012) and Goddard et al (2015) for exchange rates.) 6 A Form 10-K is an annual report required by the U.S. Securities and Exchange Commission (SEC), that gives a comprehensive summary of a company's financial performance.…”