COVID-19 and investor sentiment influence on the US and European countries sector returns

  • Received July 9, 2020;
    Accepted September 29, 2020;
    Published October 8, 2020
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.17(3).2020.28
  • Article Info
    Volume 17 2020, Issue #3, pp. 373-386
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This work is licensed under a Creative Commons Attribution 4.0 International License

Although some studies recently address the association between COVID-19 sentiment and returns, volatility, or stock trading volume, no one conducts an analysis to measure the impact of investor rationality or irrationality on the influence on countries and sectors’ returns.
This work creates a text media sentiment and combines its influence with the outbreak cases on the stock market sector returns of the US, Europe, and their main countries most affected by the pandemic.
This allows us to perceive the ranking impact of rationality or irrationality on country and sector stock returns. This work applies a random-effects robust panel estimation, with an M-estimator. This paper concludes that US returns are more sensitive to sentiment, and thus more prone to irrational factors than confirmed cases compared to Europe and that country factors influence the returns differently. In Italy and Spain as the most punished countries in Europe apart from the UK, present sector indexes return more reactive to verified cases, or rationality, namely, tourism, real estate, and the automobile (this last one in Italy).
The importance of this work resides in providing a new in-depth analysis of irrational behavioral metrics among countries, which allows for comparison. Moreover, it allows observing which sectors’ and which countries’ asset returns are most sensitive to rational or irrational expressions of events, allowing for arbitraging, financial planning for investors, decision-makers, and academia on an in and out of pandemic context.

Acknowledgment
This work is funded by National Funds through the FCT – Foundation for Science and Technology, I.P., within the scope of the project Refª UIDB/05583/2020. Furthermore, we would like to thank the Research Centre in Digital Services (CISeD) and the Polytechnic Institute of Viseu for their support.

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    • Figure 1. Sentiment for Europe and for the US
    • Figure 2. Sentiment for the US and European countries
    • Table 1. Words search inserted on the news from 2004 till 2020, April 16th (million)
    • Table 2. Summary statistics and variable definition
    • Table 3. Random effects panel regression results for the US and Europe
    • Table 4. OLS robust regressions for Spain and Italy
    • Table 5. OLS robust regressions for Germany and UK
    • Table 6. OLS robust regressions for France
    • Table 7. Correlation coefficients among irrational behavior measured by the sentiment index duly standardized
    • Data curation
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Conceptualization
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Formal Analysis
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Funding acquisition
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Investigation
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Methodology
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Project administration
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Resources
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Software
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Supervision
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Validation
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Visualization
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Writing – original draft
      Pedro Manuel Nogueira Reis, Carlos Pinho
    • Writing – review & editing
      Pedro Manuel Nogueira Reis, Carlos Pinho