News implied volatility and aggregate economic activity: evidence from the Japanese government bond market

ABSTRACT

Because options on 10-year Japanese government bond (JGB) futures are relatively new in the market, their implied volatility, JGB-VIX, is not available before 2007. For the period when JGB-VIX is available, we conduct supervised learning by using the daily newspaper articles as input and JGB-VIX as output. We then construct a new JGB market uncertainty measure, which we called JGB-NU, based on the predicted values of JGB-VIX from the estimated model and contents of the newspaper articles from 1981 to 2021. In the VAR analysis with JGB-NU, we confirm that JGB market uncertainty shocks have a negative impact on real economic activities in Japan.

KEYWORDS:

• JGB
• support vector regression
• uncertainty
• VAR model
• VXJ

JEL CLASSIFICATION:

• C32
• E32
• E62

Acknowledgments

The authors would like to thank Nick Bloom, Tomohiro Tsuruga, Hiroki Yamamoto and the seminar and conference participants at the 3rd International Conference on Econometrics and Statistics (EcoSta 2019) for useful comments and suggestions.

Disclosure statement

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

Additional information

Funding

This work is supported by 2021-22 Chuo University Joint Research Grant and JSPS KAKENHI Grant [17H02510, 20H01482 and 22H00862].