Economics at your fingertips  

Central bank communication in the media and investor sentiment

Hamza Bennani ()

Journal of Economic Behavior & Organization, 2020, vol. 176, issue C, 431-444

Abstract: This paper explores the relationship between central bank communication and investor sentiment. We first use media coverage on Fed chair’s communication to quantify the degree of confidence and optimism expressed by the Fed chair and call this variable the overconfidence indicator. Second, we relate the overconfidence indicator to investor sentiment. Our results show that an overconfident Fed chair is significantly associated with higher investor sentiment. Further extensions suggest that (i) investors are more sensitive to central bank communication during a recession and that (ii) they adjust rapidly their sentiment following central bank communication, thus showing that there is no underreaction bias. These findings provide additional insights on how central bank communication shapes investor sentiment in the context of the Global Financial Crisis and the zero lower bound on nominal interest rates.

Keywords: Central bank communication; Overconfidence; Investor sentiment; Fed chair (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Central Bank Communication in the Media and Investor Sentiment (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jebo.2020.05.022

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2021-06-30
Handle: RePEc:eee:jeborg:v:176:y:2020:i:c:p:431-444