The relationship between investor attention and volatility of the PSEi: A VAR and Granger causality approach

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ID: 285754
2021
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Abstract
The function that investor attention plays in the movement of prices in financial markets has been a prevailing interest to financial economists. Traditionally, proxies for investor attention have been confined to but not limited to news, trading volume, and abnormal returns. However, these proxies are indirect and are unable to directly observe the fundamental behaviors of individual investors. With this, internet search data and social media activity has offered opportunities for researchers to directly analyze collective behavior ahead of more traditional sources. The body of literature on this subject matter remains scarce and mixed, especially in emerging and underdeveloped financial markets. To observe the relationship between investor attention and returns volatility of the Philippine Stock Exchange index (PSEi), the researchers estimate vector autoregression models utilizing time series data, Google search volume index and Investagrams Social Live Feeds. With this, the study hypothesizes that investor attention and stock volatility in the Philippine stock exchange when using search queries and social media posts. The findings reveal that Google search volume negatively affects returns volatility, while Investagrams Social Live Feeds volume positively influences returns volatility. Inversely, these relationships are reversed when investigating the impact of returns volatility on investor attention. Furthermore, the results of Granger causality analysis indicate that search queries and social media posts provide information on the future volatility of the PSEi.
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Authors Tiongco, Liam R.
Journal Malay Journal
Year 2021
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