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Exploiting News Analytics for Volatility Forecasting

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  • Simon Tranberg Bodilsen
  • Asger Lunde

Abstract

This study investigates the potential of news sentiment in predicting stock market volatility. We augment traditional time series models of realized volatility with the sentiment of macroeconomic and firm‐specific news. Our results demonstrate that incorporating the sentiment of domestic macroeconomic news significantly improves volatility predictions for individual stocks and the S&P 500 Index. Notably, we find substantial enhancements in long‐horizon volatility predictions when including the sentiment of macroeconomic news in the regression models. In contrast, firm‐specific news sentiment shows only modest predictive power in the general framework. However, expanding the set of predictors to include the news count of firm‐specific news occurring overnight between two consecutive trading periods significantly improves one‐period‐ahead volatility forecasts. JEL Classification: C53, C55, C58, G14, G17

Suggested Citation

  • Simon Tranberg Bodilsen & Asger Lunde, 2025. "Exploiting News Analytics for Volatility Forecasting," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(1), pages 18-36, January.
    • Handle: RePEc:wly:japmet:v:40:y:2025:i:1:p:18-36
    DOI: 10.1002/jae.3095
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    References listed on IDEAS

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    Cited by:

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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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