Investor attention and FX market volatility

John Goddard; Arben Kita; Qingwei Wang

doi:10.1016/j.intfin.2015.05.001

Investor attention and FX market volatility

John Goddard, Arben Kita, Qingwei Wang

Research output: Contribution to journal › Article › peer-review

87 Citations (Scopus)

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.

Original language	English
Pages (from-to)	79-96
Number of pages	18
Journal	Journal of International Financial Markets, Institutions and Money
Volume	38
Early online date	19 May 2015
DOIs	https://doi.org/10.1016/j.intfin.2015.05.001
Publication status	Published - 01 Sept 2015
Externally published	Yes

Keywords

investor attention
FX volatility
option pricing
GARCH

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title = "Investor attention and FX market volatility",

abstract = "We study the relationship between investors{\textquoteright} 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.",

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AB - 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.

KW - investor attention

KW - FX volatility

KW - option pricing

KW - GARCH

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DO - 10.1016/j.intfin.2015.05.001

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Investor attention and FX market volatility

Abstract

Keywords

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