Financial returns, sentiment and market volatility. A dynamic assessment

Stefano Borgioli, Giampiero Gallo () and Chiara Ongari

No 2999, Working Paper Series from European Central Bank

Abstract: In 1936, John Maynard Keynes proposed that emotions and instincts are pivotal in decision-making, particularly for investors. Both positive and negative moods can influence judgments and decisions, extending to economic and financial choices. Intuitions, emotional states, and biases significantly shape how people think and act. Measuring mood or sentiment is challenging, but surveys and data collection methods, such as confidence indices and consensus forecasts, offer some solutions. Recently, the availability of web data, including search engine queries and social media activity, has provided high-frequency sentiment measures. For example, the Italian National Statistical Institute’s Social Mood on Economy Index (SMEI) uses Twitter data to assess economic sentiment in Italy. The relationship between SMEI and financial market activity, specifically the FTSE MIB index and its volatility, is examined using a trivariate Vector Autoregressive model, taking into account the impact of the COVID-19 pandemic. JEL Classification: C1, C32, C53, G4

Keywords: financial market; forecasting; Granger Causality; sentiment analysis; VAR (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-pke
Note: 339024
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Related works:
Working Paper: Financial Returns, Sentiment and Market Volatility: a Dynamic Assessment (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20242999

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