Global financial crisis versus COVID-19: Evidence from sentiment analysis

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    This study examines the relationship between sentiment and the realized volatility of returns for different asset classes (stocks, bonds, foreign currency, and commodities). Specifically, we aim to answer two key questions: first, how does sentiment relate to volatility during crises (mainly during the global financial crisis [GFC] and the COVID-19 pandemic)? Second, can sentiment be used to forecast volatility during crises? Using two nonparametric methods, mutual information and transfer entropy, we find that information sharing and transfer increased during the pandemic. We also find that sentiment information transfer to the volatility of assets differed between the GFC and the COVID-19 crisis. Since sentiment can reduce uncertainty around the realized variance of assets, we investigate the forecasting ability of sentiment during crises. We find that sentiment has a greater predictive power on realized volatility during crises, with a differential impact on volatility depending on the asset class. Our findings carry important implications for hedging, risk management and building models to predict variance during crises.

    Original languageEnglish
    Pages (from-to)218-248
    Number of pages31
    JournalInternational Finance
    Volume25
    Issue number2
    DOIs
    Publication statusPublished - Aug 1 2022

    Keywords

    • COVID-19
    • forecasting
    • global financial crises
    • mutual information
    • sentiment
    • transfer entropy
    • volatility

    ASJC Scopus subject areas

    • Geography, Planning and Development
    • Development
    • Finance

    Fingerprint

    Dive into the research topics of 'Global financial crisis versus COVID-19: Evidence from sentiment analysis'. Together they form a unique fingerprint.

    Cite this