Investor sentiments and stock markets during the COVID-19 pandemic

Abstract

This study examines the relationship between positive and negative investor sentiments and stock market returns and volatility in Group of 20 countries using various methods, including panel regression with fixed effects, panel quantile regressions, a panel vector autoregression (PVAR) model, and country-specific regressions. We proxy for negative and positive investor sentiments using the Google Search Volume Index for terms related to the coronavirus disease (COVID-19) and COVID-19 vaccine, respectively. Using weekly data from March 2020 to May 2021, we document significant relationships between positive and negative investor sentiments and stock market returns and volatility. Specifically, an increase in positive investor sentiment leads to an increase in stock returns while negative investor sentiment decreases stock returns at lower quantiles. The effect of investor sentiment on volatility is consistent across the distribution: negative sentiment increases volatility, whereas positive sentiment reduces volatility. These results are robust as they are corroborated by Granger causality tests and a PVAR model. The findings may have portfolio implications as they indicate that proxies for positive and negative investor sentiments seem to be good predictors of stock returns and volatility during the pandemic.

Firms' exposures on COVID-19 and stock price crash risk: Evidence from China

“…Therefore, we believe the sentiment related to general news of COVID-19, and the detailed aspects of medical, travelling, and uncertain can lead to an increase in stock price crash risk. While vaccines can help us drive COVID-19 out, so the sentiment exposed to vaccines is opposed to the sentiment exposed to other news of COVID-19, which is consistent with the point of Cevik et al (2022) . Hence, sentiment exposed to vaccines can reduce the risk of stock price crash.…”

“…Bad-news-hoarding activities finally lead to the stock price crash ( Chang et al 2017 ; Cevik et al 2022 ; Ding et al 2019 ). We set the high transparency sample with the rating of A or B and low transparency sample with the rating of C or D according to the information transparency rating issued by Stock Exchange.…”

“…On the contrary, the news of vaccines can bring people positive sentiments ( Cevik et al 2022 ). Vaccines present the hope for removing viruses.…”

“…In this study, we empirically investigate the impact of the exposure of COVID-19 sentiment on the stock price crash risk. Consistent with Lwin et al (2020) , Cevik et al (2022) , and Akram and Haider (2022) , we use the news about COVID-19 to measure the sentiment. Specifically, we use the comprehensive indices constructed by Narayan et al (2021) which capture the news about COVID-19 from different aspects.…”

“…The study contributes to the literature in the following ways. Firstly, it contributes to the ongoing discussion on the real effect on economics of COVID-19 ( Cevik et al 2022 ; John and Li 2021 ; Kong et al, 2022 a; Kong et al, 2022 b). Prior studies concentrate more on the whole effects of COVID-19 using the number of new confirmed cases or deaths, which ignore more detailed information brought by COVID-19.…”