The volatility of daily tug-of-war intensity and stock market returns

We examine the predictive role of the volatility of daily tug-of-war intensity (VDTWI) in stock market returns. Based on the empirical evidence in China, we show that VDTWI significantly and positively impacts stock market returns. Moreover, the out-of-sample forecasting of VDTWI also performs well. Results show that the model of VDTWI has an out-of-sample R-squared of 3.473% and great economic values, of which certainty equivalent return and Sharpe ratio gains are 8.683 and 0.630, respectively. Furthermore, combining the volatility of daily tug-of-war intensity and popular predictors can improve forecasting performance.