Journal
JOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volume 188, Issue -, Pages 1088-1108Publisher
ELSEVIER
DOI: 10.1016/j.jebo.2021.06.016
Keywords
COVID-19; Investor sentiment; Feverish sentiment index; Equity indices
Categories
Funding
- University of Economics Ho Chi Minh City (Vietnam) [2021-03-15-0275]
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This paper proposes a new method to estimate investor sentiment and its impact on global financial markets, introducing a new index called "feverish sentiment" and exploring its predictive power on stock returns and volatility. The study highlights the United Kingdom, China, the United States, and Germany as the epicenters of sentiment shocks transmitted to other economies.
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 1 st January 2020 to 3 rd 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. (c) 2021 Elsevier B.V. All rights reserved.
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