Natural Disaster Effects on Popular Sentiment toward Finance

Abstract

We use a text-based measure of popular sentiment toward finance to study how finance sentiment responds to rare historical disasters and to the ongoing COVID-19 pandemic. Finance sentiment declines after epidemics and earthquakes, but rises following severe droughts, floods, and landslides. These heterogeneous effects of natural disasters suggest finance sentiment responds differently to the realization of insured versus uninsured risks. Finance sentiment declines at the start of the COVID-19 pandemic, but largely recovers in countries that responded with large fiscal spending and government guarantees.

Keywords: sentiment, natural disasters, text analysis, word embedding, COVID-19

JEL Classification: C82, E44, G01, G28, G52, N40, Q54