Using daily data from November 1985 to July 2020, we analyse the impact of a daily newspaper-based index of uncertainty associated with infectious diseases (EMVID) on the level, slope and curvature factors derived from the term structure of interest rates of the US covering maturities of 1 year to 30 years. Results from nonlinearity and structural break tests indicate the misspecification of the linear causality model and point to the suitability of applying a time-varying model that is robust to misspecification due to nonlinearity and regime change. We thus use a dynamic conditional correlation-multivariate generalised autoregressive conditional heteroskedasticity (DCC-MGARCH) framework and the results indicate significant predictability of the three latent factors from the EMVID index at each point of the entire sample, and also provide evidence of instantaneous spillover. Finally, we comprehensively determine the safe-haven characteristic of the US Treasury market by analysing the signs of the underlying time-varying conditional correlation between the level, slope and curvature factors and the EMVID index. Results show that US treasuries with longterm maturities as captured by the level factor are consistently negatively correlated with the EMVID index, i.e., they act as a safe-haven, with the slope factor (medium-term maturities) following this trend since 2007, and the slope factor (short-term maturities) also showing signs of a safe-haven since May of 2020. Overall, the findings provide reasonable evidence to imply that US Treasury securities can hedge the risks associated with the financial market in the wake of the current COVID-19 pandemic.

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PurposeThe purpose of this paper is to capture the investors' mood related to the COVID-19 pandemic and analyze its impact on the stock market returns.Design/methodology/approachTo capture the investor mood related to the COVID-19 pandemic, the authors construct a unique COVID-19 fear index based on the Search Volume Index (SVI) from Google Trends (http://www.Google.com/trends/) of the search terms related to COVID-19 words and phrases as revealed by Google and Internet dictionaries. The COVID-19 fear index was used to investigate its impact on the stock market returns.FindingsThe study finds a strong negative association between COVID-19 fear and stock returns. Unlike other studies, the relationship is persistent for a significant period. This relationship is not found to reverse in the following days. The results also highlight that COVID-19 fear strongly impacts the stock market. The sentiment persists for a significant period and is not reversed soon, unlike the regular times in earlier studies.Originality/valueThe study is among the very few studies that constructed COVID-19 fear index using several Google search terms and captured its impact on the stock market returns.

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PurposeThe study examines the cross-sectional and asymmetric relationship of investor sentiment with the stock returns and volatility in India.Design/methodology/approachThe investor sentiment is captured using a market-based measure Market Mood Index (MMI) and a survey-based measure Consumer Sentiment Index (CSI). The asymmetric effect of the relationship is examined using quantile causality approach and cross-sectional effect is examined by considering indices such as the BSE Sensex, and the various size indices such as BSE Large cap, BSE Mid cap and BSE Small cap.FindingsThe result of the study found that investor sentiment (MMI) cause stock returns at extreme quantiles. Lower sentiment induces fear-induced selling, thereby lowers the returns and high sentiment is followed by lower future returns as market reverts to fundamentals. On the other hand, bullish shifts in sentiment lower the volatility. There exists a positive feedback effect of stock return and volatility in the formation of investor sentiment.Originality/valueThe study captures both asymmetric and cross-sectional relationship of investor sentiment and stock market in an emerging economy, India. The study uses a novel data set (i.e.) MMI which captures the sentiment based on market indicators and are widely disseminated to the public.