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. 2022 Jul:82:102186.
doi: 10.1016/j.irfa.2022.102186. Epub 2022 Apr 22.

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

Yu-Lin Hsu  1 , Leilei Tang  1
Affiliations

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

Yu-Lin Hsu et al. Int Rev Financ Anal. 2022 Jul.

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.

Keywords: COVID-19; Country governance; Investor protection; Investor sentiment; Volatility.

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Conflict of interest statement

None. This research did not receive any specific grant from funding agencies.

Figures

Fig. 1
Fig. 1
Country-level governance variables. Note: The left horizontal histogram presents the anti-self-dealing index (ranging from 0 to 1, where 1 indicates the highest protection to minority investors). The middle horizontal histogram shows the government effectiveness index (ranging from 0 to 100, where 100 indicates the highest effectiveness). The right horizontal histogram presents the overall investor protection ranking (ranging from 1 to 137, where 1 represents the highest investor protection).
Fig. 2
Fig. 2
Google search volume index on “COVID-19” during the pandemic period.
Fig. 3
Fig. 3
Unexpected stock market volatilities during the pandemic period.
See this image and copyright information in PMC

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