Research on the Volatility of the Cotton Market under Different Term Structures: Perspective from Investor Attention

Abstract

This study performed comprehensive investigations of the complex interconnections between investor attention and cotton futures price volatility under different term structures. In this paper, in-sample analysis, out-of-sample forecast, influencing mechanisms, as well as nonlinear connections are fully explored using several linear model specifications. The results can be summarized as follows: first, investor attention is the Granger causality of the cotton futures volatility and shows significant linear impacts on cotton volatility; second, models incorporated with investor attention significantly improve the prediction accuracy of cotton volatility in the long term compared with the commonly used AR benchmark model; third, the influence of investor attention on cotton volatility may occur through open interest; and fourth, investor attention presents nonlinear impacts on cotton volatility as well. Overall, the results of this article can provide strong supporting evidence for the important roles of investor attention in asset pricing applications.