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A sentiment index to measure sovereign risk using Google data

Marcos González-Fernández and Carmen González-Velasco

International Review of Economics & Finance, 2020, vol. 69, issue C, 406-418

Abstract: The aim of this paper is to construct an index that reflects investor sentiment regarding sovereign debt markets and to analyze this index to predict the evolution of sovereign risk. This Google Sovereign-Risk Sentiment Index (GSSI) is constructed by aggregating Google search data for a set of keywords related to the sovereign debt crisis that took place in Europe. The results indicate that the GSSI shows a high correlation with other sovereign risk indexes. Moreover, we analyze through panel data regressions its relationship with sovereign Credit Default Swaps (CDSs) for a set of European countries in the period 2008–2017. We determine that the GSSI shows the expected positive relationship with sovereign risk, especially in peripheral countries and during the period of maximum financial distress in sovereign debt markets. Our findings contribute to the investor sentiment literature and provide a novel measure of sovereign risk. These results suggest several implications for public authorities and regulators.

Keywords: Sovereign risk; Google data; Internet activity; Investor sentiment; Sovereign debt crisis (search for similar items in EconPapers)
JEL-codes: G10 G17 G40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:69:y:2020:i:c:p:406-418

DOI: 10.1016/j.iref.2020.05.011

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