Title: News implied volatility and aggregate economic activity: Japanese evidence
Authors: Keiichi Goshima - (Japan)
Hiroshi Ishijima - Chuo University (Japan)
Mototsugu Shintani - University of Tokyo (Japan) [presenting]
Abstract: Because options on Japanese government bonds (JGB) futures are relatively new in the market, JGB-VIX Index cannot be computed before 2007. For the training period when JGB-VIX index is available as output data, we conduct the supervised learning using the daily newspaper articles as input. Using the estimated relationship between JGB-VIX and the news, we construct a new uncertainty measure based on contents of the newspapers from 1981 to 2017. Our uncertainty measure, which we call JGB-NVIX index, suggests that the volatility of JGB market increases with events related to stock market crashs, wars and government policy announcements. In the short run, our JGB-NVIX index is found to be useful in predicting the industrial production in Japan. Furthermore, using an identification strategy based on a VAR model with JGB-NVIX index, we confirm that uncertain shocks have a negative impact on the real economic activities in Japan.