The connectedness between Twitter uncertainty index and stock return volatility in the G7 countries

ABSTRACT

Although a plethora of studies exists on economic uncertainty and stock market returns, our study contributes to the literature by examining the interconnectedness between Twitter uncertainty index and stock return volatility in the G7 countries. Using the dynamic connectedness approach, our results indicate volatility spillover among indices, where on average, 39.71% of a shock that occurs on one index spills over to all other indices. Further, we find the DAX index (Germany) to be a major transmitter of shocks, whereas the S&P 500 index (United States), Twitter market uncertainty, and G7 average returns are net receivers of shocks. Our findings will help investors select optimal portfolios, and policymakers frame stabilizing policy. Our findings are also robust in case of the alternate model.

KEYWORDS:

• Volatility spillover
• dynamic connectedness
• stock returns
• G7 countries
• Twitter uncertainty index

JEL CLASSIFICATION:

• G11
• G15
• G18

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ For detailed methodology, please refer to Baker et al. (2021).