Effects of investor sentiment and country governance on unexpected conditional volatility during the COVID-19 pandemic : evidence from global stock markets

Hsu, Yu-Lin and Tang, Leilei (2022) Effects of investor sentiment and country governance on unexpected conditional volatility during the COVID-19 pandemic : evidence from global stock markets. International Review of Financial Analysis, 82. 102186. ISSN 1057-5219 (https://doi.org/10.1016/j.irfa.2022.102186)

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Abstract

This paper first investigates the relationship between investor sentiment, captured by internet search behaviour, and the unexpected component of stock market volatility during the COVID-19 pandemic. According to data on 12 major stock markets, our research indicates a positive correlation between the Google search volume index on COVID-19 and the unexpected volatility of stock markets. The result suggests that greater COVID-19-related investor sentiment during this pandemic is associated with higher stock market uncertainty. Our study further examines whether country-level governance plays a role in protecting stock markets during this pandemic and reveals that the unexpected conditional volatility is lower when a country's governance is more effective. The impact of investor sentiment and country governance on unexpected volatility after the initial shock of COVID-19 is also investigated. The findings demonstrate the importance of establishing good country-level governance that can effectively reduce stock market uncertainty in the context of this pandemic, and support continual policy development related to investor protection.

ORCID iDs

Hsu, Yu-Lin and Tang, Leilei ORCID logoORCID: https://orcid.org/0000-0003-0422-9892;
CORE (COnnecting REpositories)