CFE 2020: Start Registration
View Submission - CFE
A0690
Title: Retail investors' trading activity and the predictability of stock return correlations Authors:  Daniele Ballinari - University of St Gallen (Switzerland) [presenting]
Abstract: Considerable theoretical and empirical evidence links price comovements with the behavior of retail investors. Nevertheless, when predicting stock return correlations, research has focused on the leverage effect. We propose a new model of realized covariances that allows exogenous predictors to influence the correlation dynamics while ensuring the predicted matrices' positive definiteness. Using this model, the predictive power of retail investors' sentiment and attention for the correlations of 35 Dow Jones stocks is analyzed. We find retail investors' attention to have predictive power for return correlations, especially for longer forecasting horizons and during the COVID-19 pandemic. Value-at-risk forecasts confirm these results.