Feverish sentiment and global equity markets during the COVID-19 pandemic

Toan Luu Duc Huynh, Matteo Foglia, Muhammad Ali Nasir and Eliana Angelini

Journal of Economic Behavior & Organization, 2021, vol. 188, issue C, 1088-1108

Abstract: This paper proposes a new approach to estimating investor sentiments and their implications for the global financial markets. Contextualising the COVID-19 pandemic, we draw on the six behavioural indicators (media coverage, fake news, panic, sentiment, media hype and infodemic) of the 17 largest economies and data from 1st January 2020 to 3rd February 2021. Our key findings, obtained using a time-varying parameter-vector auto-regression (TVP-VAR) model, indicate the total and net connectedness for the new index, entitled ‘feverish sentiment’. This index provides us insight into economies that send or receive the sentiment shocks. The construction of the network structures indicates that the United Kingdom, China, the United States and Germany became the epicentres of the sentimental shocks that were transmitted to other economies. Furthermore, we also explore the predictive power of the newly constructed index on stock returns and volatility. It turns out that investor sentiment positively (negatively) predicts the stock volatility (return) at the onset of COVID-19. This is the first study of its kind to assess international feverish sentiments by proposing a novel approach and its impacts on the equity market. Based on empirical findings, the study also offers some policy directions to mitigate the fear and panic during the pandemic.

Keywords: COVID-19; Investor sentiment; Feverish sentiment index; Equity indices (search for similar items in EconPapers)
JEL-codes: D12 D14 G02 G21 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (70)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:188:y:2021:i:c:p:1088-1108

DOI: 10.1016/j.jebo.2021.06.016

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