Information demand and stock market volatility

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258 Citations (Scopus)

Abstract

We study information demand and supply at the firm and market level using data for 30 of the largest stocks traded on NYSE and NASDAQ. Demand is approximated in a novel manner from weekly internet search volume time series drawn from the recently released Google Trends database. Our paper makes contributions in four main directions. First, although information demand and supply tend to be positively correlated, their dynamic interactions do not allow conclusive inferences about the information discovery process. Second, demand for information at the market level is significantly positively related to historical and implied measures of volatility and to trading volume, even after controlling for market return and information supply. Third, information demand increases significantly during periods of higher returns. Fourth, analysis of the expected variance risk premium confirms for the first time empirically the hypothesis that investors demand more information as their level of risk aversion increases.
Original languageEnglish
Pages (from-to)1808-1821
Number of pages14
JournalJournal of Banking and Finance
Volume36
Issue number6
DOIs
Publication statusPublished - Jun 2012

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