Stock return and volatility reactions to information demand and supply

Abstract

The objective of this paper is to evaluate the impact of information demand and supply on stock market return and volatility. In this study we employ a proxy for information demand which is derived from weekly internet search volume. The latest is drawn from Google Trends database, for 25 of the largest stocks traded on CAC40 index, between April 2007 and March 2014. We use news headlines as a proxy for information supply. Our empirical findings suggest: First public information has an impact on stock returns but its impact on the volatility is much more important. Second, the influence of specific information demand to the company persists even by adding market information demand and firm/market information supply. Finally, by applying MCA to results found, it could be concluded that the impact of public information on stock return and volatility is conditioned by two elements: The company and market news disclosure, and the second element relates to the characteristics of the market participants, more precisely their news interpretations and their risk aversion.