On the Construction of a Positive Sentiment Index for COVID-19: Evidence from G20 Stock Markets

Abstract

The present study investigates the degree of market responses through the scope of investors’ sentiment during the COVID-19 pandemic across G20 markets, by constructing a novel positive search volume index for COVID-19 (COVID19+). Our key findings, obtained using a Panel-GARCH model, indicate that an increased COVID19+ index suggests that investors decrease their COVID-19 related crisis sentiment by escalating their Google searches for positively associated COVID-19 related keywords. Specifically, we explore the predictive power of the newly constructed index on stock returns and volatility. According to our findings, investor sentiment positively (negatively) predicts the stock return (volatility) during the COVID-19. This is the first study of its kind assessing global sentiment by proposing a novel proxy and its impacts on the G20 equity market.