When the stock market trembles in one country, can it send ripples across another — just through news headlines? That’s the question I asked in my doctoral research, and the answer was a firm yes.

In this post, I’ll walk you through what I studied, how I approached it, and what my findings could mean for investors, analysts, and financial educators alike.

The Big Idea: News = Volatility

We’ve all seen how news stories — about inflation, interest rates, or political drama — can send markets swinging. But what about news-based uncertainty from the United States, and its impact on Canadian stock market volatility?

To explore this, I used a special kind of dataset called NVIX (News-based Volatility Index). It was built from analyzing the tone and frequency of U.S. newspaper headlines — specifically, the front pages of The Wall Street Journal. This index has been used before in U.S. markets, but no one had rigorously studied how it affects Canada, despite our tightly connected economies.

The Approach: GARCH-MIDAS Modeling

Most models that try to forecast market volatility look at historical prices. But I used something more advanced: the GARCH-MIDAS model. It allows me to bring in monthly news data (like NVIX) and combine it with daily stock returns from Canada’s S&P/TSX index.

Think of it as a two-layer approach:

• The GARCH part handles short-term market jitters.

• The MIDAS part captures long-term uncertainty, like changes in investor sentiment from news headlines.

What I Found

Here’s the short version:

• US news-based uncertainty significantly predicts Canadian stock market volatility.

• Adding NVIX improved forecast accuracy by more than 14% over traditional models.

• During big events (like COVID-19), NVIX spikes aligned closely with volatility surges in Canada.

This tells us that what’s happening in US media — not just their economy — has real implications for Canadian investors.

Why This Matters

For investors: Knowing that external uncertainty drives volatility helps with hedging strategies and portfolio rebalancing.

For policymakers: It reinforces how sensitive Canada’s markets are to external shocks, especially media-driven sentiment.

For researchers and educators: It shows the power of combining quantitative models with textual data — a growing trend in financial econometrics.

Key Takeaway

The future of market forecasting isn’t just in numbers — it’s also in narratives. US headlines shape expectations, and expectations move markets. As our economies grow even more interconnected, models that ignore cross-border sentiment risk falling behind.

So the next time you read a gloomy U.S. headline, know this: Canadian investors might already be reacting.