Can happiness predict future volatility in stock markets? |
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Institution: | 1. School of Economics and Finance, Massey University, Auckland, New Zealand;2. School of Business & Economics, University of Management & Technology, Pakistan;3. Higher School of Economics and Business, Al-Farabi Kazakh National University;4. Montpellier Business School, France;5. South Ural State University, Russian Federation |
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Abstract: | In this paper, we use the Twitter based happiness index as a proxy for investor sentiment in order to examine whether happiness influences future market volatility of country VIX indexes. Our sample includes the major stock markets of the USA, Canada, UK, Germany, France, Netherlands, Switzerland, Japan, China, Hong Kong, India, Brazil, South Korea, and South Africa. Using linear and nonlinear causality tests, we find that Twitter happiness significantly causes the future volatility of the sample countries. The robustness checks show no divergence from our primary findings and provide strong evidence of a nonlinear relationship between investor sentiment and future stock market volatility. |
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Keywords: | G12 G14 |
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