COVID-19 and Investor Sentiment Influence on the US and European Countries Sector Returns

Pedro Manuel Nogueira Reis and Carlos Pinho (2020). COVID-19 and Investor Sentiment Influence on the Us and European Countries Sector Returns. Investment Management and Financial Innovations, 17(3), 373-386. Doi:10.21511/imfi.17(3).2020.28

15 Pages Posted: 10 Jul 2020 Last revised: 8 Oct 2020

See all articles by Pedro Nogueira Reis

Pedro Nogueira Reis

Polytechnic Institute of Viseu - CISeD Research Center in Digital Services

Carlos Pinho

Universidade de Aveiro

Date Written: October 8, 2020

Abstract

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.

Keywords: coronavirus, pandemic, panic, fear, contagion, spillover, index

JEL Classification: G15, G40

Suggested Citation

Nogueira Reis, Pedro and Pinho, Carlos, COVID-19 and Investor Sentiment Influence on the US and European Countries Sector Returns (October 8, 2020). Pedro Manuel Nogueira Reis and Carlos Pinho (2020). COVID-19 and Investor Sentiment Influence on the Us and European Countries Sector Returns. Investment Management and Financial Innovations, 17(3), 373-386. Doi:10.21511/imfi.17(3).2020.28, Available at SSRN: https://ssrn.com/abstract=3647577 or http://dx.doi.org/10.2139/ssrn.3647577

Pedro Nogueira Reis (Contact Author)

Polytechnic Institute of Viseu - CISeD Research Center in Digital Services ( email )

Portugal

Carlos Pinho

Universidade de Aveiro ( email )

Rua Associação Humanitária Bombeiros de Aveiro
Aveiro, 3800
Portugal

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