NEWS IMPPLIED VOLATILITY INDEXES
NEWS IMPPLIED VOLATILITY INDEXES

Summary/Abstract: The impact of new information on stock market prices has gained a lot of attention from academics and policy makers alongside the development of the modern portfolio theories. Therefore, in the recent years we noticed an ever-growing number of studies that try building news implied volatility indexes as a proxy for investors perception related to new information in the media. While some of the volatility-based news index sources are powerful instruments that can predict future stock price movement, their applicability seems to be limited while the results can be inconclusive sometimes. The main issues surrounding news-based volatility indexes rise from their inability to incorporate all types of information, or the lack of a true validation system for the information included in the analysis. Furthermore, there are some major methodological concerns regarding some types of indexes, or data source included in building the index. Overall, our results indicate despite some concerns regarding the composition of the indexes, many news-based volatility indexes can be used as powerful instruments by both investors and policy makers.

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