Investor following and volatility: A GARCH approach

Abstract

In this paper, we aim to investigate whether investor following is a determinant of the stock market volatility. To measure investor following, we use “Google Insights for search” freshly introduced to the financial literature. The latter records the online search traffic for any keyword submitted to Google since 2004. Thanks to an extensive database, we focus precisely on the French stock market unlike previous works, which have focused largely on the US stock market. Notably, our findings support strong significant effects of investor following as measured by online search behavior on the conditional volatility estimated from GARCH (1,1) Market model. Our results are robust to additional tests.