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Investor attention and FX market volatility

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  • Goddard, John
  • Kita, Arben
  • Wang, Qingwei

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 contemporaneous 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.

Suggested Citation

  • Goddard, John & Kita, Arben & Wang, Qingwei, 2015. "Investor attention and FX market volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 38(C), pages 79-96.
  • Handle: RePEc:eee:intfin:v:38:y:2015:i:c:p:79-96
    DOI: 10.1016/j.intfin.2015.05.001
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    More about this item

    Keywords

    Investor attention; FX volatility; Option pricing; GARCH;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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