Social interaction, volatility clustering, and momentum

Xue-Zhong He, Kai Li*, Caterina Santi, Lei Shi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

This paper incorporates information uncertainty and social interaction among investors into a random utility framework and develops a dynamic equilibrium model of asset pricing and investor choice. We show that strong social interaction can lead to endogenous switching between two persistent regimes for the mean choice fraction of investor population, which can simultaneously generate volatility clustering and time-series momentum in asset returns. By using StockTwits post volume as a proxy for social interaction, we provide empirical evidence for the model predictions for various equity indices.
Original languageEnglish
Pages (from-to)125-149
Number of pages25
JournalJournal of Economic Behavior and Organization
Volume203
DOIs
Publication statusPublished - Nov 2022

Keywords

  • social interaction
  • mean choice
  • volatility clustering
  • time-series momentum
  • excess volatility

Fingerprint

Dive into the research topics of 'Social interaction, volatility clustering, and momentum'. Together they form a unique fingerprint.

Cite this