Media-Coverage-Related Investor Sentiment during the COVID-19 Pandemic

Abstract

This study tests the relationship between investor sentiment generated by COVID-19-related media coverage and BIST100 Index returns. In this context, the study is based on the ground laid by Tetlock’s (2007) study, which stated that media content and stock market activity are correlated. The effect of investor sentiment on the BIST 100 Index is examined in this study for the period 11 March 2020 – 19 August 2020 through the news on the COVID-19 pandemic. In this context, panic, fear, media coverage and vaccine indices are used in the study as investor sentiment proxies based on media coverage of COVID-19. The Dolado-Lütkepohl causality test and the ARDL method were used to investigate the effects of indices on the BIST100 Index return and subsequently, the cross-correlation relationship has been examined to check the robustness of the results. It is found that media-coverage-based investor sentiment indices are related to BIST100 Index returns. However, our evidence does not support investor sentiment theory.

Keywords

• investor sentiment
• behavioural finance
• BIST100
• media coverage
• COVID-19

References

1. Al-Awadhi, A.M., Alsaifi, K., Al-Awadhi, A. and Alhammadi, S. (2020). Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns, Journal of Behavioral and Experimental Finance, 27, 100326.
2. Albulescu, C. (2020). Coronavirus and financial volatility: 40 days of fasting and fear, 2020, SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.3550630
3. Ali, N., Nassir, A., Hassan, T. and Abidin, S. (2010). Short run stock overreaction: Evidence from Bursa Malaysia, International Journal of Economics and Management, 4(2), 319–333.
4. Ashraf, B.N. (2020). Stock markets’ reaction to Covid-19: Cases or fatalities? Research in International Business and Finance, 54, 101249. http://dx.doi.org/10.2139/ssrn.3585789
5. Baig, A.S., Butt, H.A., Haroon, O. and Rizvi, S. (2020). Deaths, panic, lockdowns and US equity markets: The case of COVID-19 pandemic, Finance Research Letters, 101701. https://doi. org/10.1016/j.frl.2020.101701
6. Baker, M. and Stein, J.C. (2004). Market liquidity as a sentiment indicator, Journal of Financial Markets, 7(3), 271–299.
7. Baker, M. and Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. Journal of Finance, American Finance Association, 61(4), 1645–1680.
8. Baker, M. and Wurgler, J. (2007). Investor sentiment in the stock market, Journal of Economic Perspectives, 21 (2), 129–152. DOI: 10.1257/jep.21.2.129

9. Baker, S.R., Bloom, N., Davis, S.J., Kost, K.J., Sammon, M.C. and Tasaneeya, V. (2020). The unprecedented stock market impact of COVID-19. NBER Working Papers 26945. Cambridge, MA: National Bureau of Economic Research.
10. Bathia, D. and Bredin, D. (2013). An examination of investor sentiment effect on G7 stock market returns, The European Journal of Finance, 19(9), 909–937. DOI: 10.1080/1351847X.2011.636834
11. Becker, R., Endes, W. and Lee, J. (2006). A stationarity test in the presence of an unknown number of smooth breaks, Journal of Time Series Analysis, 3(5), 381–409.
12. Bollen, J., Mao, H. and Zeng, X. (2011). Twitter mood predicts the stock market, Journal of Computational Science, 2(1), 1–8.
13. Caswell, M. (2020). IAG reports €2.2 billion second quarter loss. Business Traveller, 31 July. www.businesstraveller.com/ business-travel/2020/07/31/iag-reports-e2-2-billion-second- quarter-loss, (Accessed 31 July 2020).
14. Cepoi C.O. (2020). Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil, Finance Research Letters, 36, 101658. https://doi. org/10.1016/j.frl.2020.101658
15. Chen, M.H., Jang, S.S. and Kim, W.G. (2007). The impact of the SARS outbreak on Taiwanese hotel stock performance: An event-study approach, International Journal of Hospitality Management, 26(1), 200–212. https://doi.org/10.1016/j. ijhm.2005.11.004
16. Chen, M.-P., Lee, C.-C., Lin, Y.-H. and Chen, W.-Y. (2018). Did the S.A.R.S. epidemic weaken the integration of Asian stock markets? Evidence from smooth time varying cointegration analysis, Economic Research-Ekonomska Istraživanja, 31(1), 908–926. DOI: 10.1080/1331677X.2018.1456354
17. Christopoulos, D.K. and León-Ledesma, M.A. (2010). Smooth breaks and non-linear mean reversion: Post-Bretton Woods real exchange rates, Journal of International Money and Finance, 29(6), 1076–1093. DOI: 10.1016/j.jimonfin. 2010.02.003.
18. CNBC (2020). Norwegian Air cancels 97 Boeing planes, claims compensation. 29 June. https://www.cnbc. com/2020/06/29/norwegian-air-cancels-97-boeing- planes-claims-compensation.html, (Accessed 29 June 2020).
19. Da, Z., Engelberg, J. and Gao, P. (2015). The sum of all fears investor sentiment and asset prices, The Review of Financial Studies, 28(1), 1–32.
20. De Bondt, Werner F.M. and Thaler, R. (1985). Does the stock market overreact? The Journal of Finance, 40(3), 793–805. DOI: 10.2307/2327804
21. De Long, J., Shleifer, A., Summers, L.and Waldmann, R. (1990). Noise trader risk in financial markets, Journal of Political Economy, 98(4), 703–738.
22. Destek, M.A. and Okumuş, İ. (2016). Satın Alma Gücü Paritesi Hipotezi Geçerliliğinin Fourier Birim Kök Testleri ile İncelenmesi: OECD Ülkeleri Örneği, Gaziantep University Journal of Social Sciences, 15(1), 73–87.
23. Dickey, D.A. and Fuller, W.A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root, Econometrica, 49(4), 1057–1072.
24. Dolado, J.J. and Lütkepohl, H. (1996). Making wald tests work for cointegrated VAR systems, Econometric Theory, 15(4), 369–386.
25. Donadelli, M., Kizys, R. and Riedel, M. (2017). Dangerous infectious diseases: Bad news for Main Street, good news for Wall Street? Journal of Financial Markets, 35(C), 84–103.
26. Enders, W. and Lee, J. (2012). The flexible Fourier form and the Dickey-Fuller type unit root tests, Economics Letters, 117, 196–199.
27. Engelhardt, N., Krause, M., Neukirchen, D. and Posch, P. (2020). What drives stocks during the corona-crash? News attention vs. rational expectation, Sustainability, MDPI 12(12), 1–12.
28. Fama, E.F. (1995). Random walks in stock market prices, Financial Analysts Journal, 51(1), 75–80. DOI: 10.2469/faj.v51. n1.1861
29. Fisher, K.L. and Statman, M. (2000). Investor sentiment and stock returns, Financial Analysts Journal, 56(2), 16–23. www.jstor.org/stable/4480229
30. French, J. (2018). Market moods: An investor sentiment event study, Foresight, 20(5), 488–506.
31. Haroon, O. and Rizvi, S. (2020). COVID-19: Media coverage and financial markets behavior – a sectoral inquiry, Journal of Behavioral and Experimental Finance, 27, 100343. https:// doi.org/10.1016/j.jbef.2020.100343
32. He, P., Sun,Y., Zhang, Y. and Li, T. (2020). COVID–19’s impact on stock prices across different sectors: An event study based on the Chinese stock market, Emerging Markets Finance and Trade, 56(10), 2198–2212.
33. Hon, M.T., Strauss, J. and Yong, S.‐K. (2004). Contagion in financial markets after September 11: Myth or reality? Journal of Financial Research, 27(1), 95–114. DOI: 10.1111/j.1475- 6803.2004.00079.x
34. ILO (2020). COVID-19 and the world of work: Impact and policy responses. ilo.org/global/topics/coronavirus (Accessed 1 May 2020).
35. Jones, L., Palumbo, D. and Brown, D. (2020). Coronavirus: A visual guide to the economic impact, www.bbc.com/news/ business-51706225 (Accessed 30 June 2020).
36. Kahneman, D. and Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Champaign: University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship. https://ssrn.com/abstract=1505880
37. Kandır, S.Y., Cerci, G. and Uzkaralar, O. (2013). Investor sentiment proxies: An example of closed end fund discount and consumer confidence index, Journal of BRSA Banking and Financial Markets, 7(2), 55–75.
38. Kaplanski, G. and Levy, H. (2010). Sentiment and stock prices: The case of aviation disasters, Journal of Financial Economics, 95(2), 174–201. https://ssrn.com/abstract=1084533
39. Kaplanski, G. and Levy, H. (2014). Sentiment, irrationality and market efficiency: The case of the 2010 FIFA World Cup, Journal of Behavioral and Experimental Economics, 49(C), 35–43.
40. Lee, H.S. (2020). Exploring the initial impact of COVID-19 sentiment on US stock market using big data, Sustainability, 12(16), 1–16.
41. Li, K. (2018). Do high-frequency fleeting orders exacerbate market illiquidity? Electronic Commerce Research, 18, 241–255.
42. Liu, H., Manzoor, A., Wang, C., Zhang, L. and Manzoor, Z. (2020). The COVID-19 outbreak and affected countries stock markets response, International Journal of Environmental Research and Public Health, 17(8), 2800.
43. Mian, G.M. and Sankaraguruswamy, S. (2012). Investor sentiment and stock market response to earnings news, The Accounting Review, 87(4), 1357–1384.
44. Narayan, P.K. and Smyth, R. (2006). What determines migration flows from low-income to high-income countries? An empirical investigation of Fiji–U.S. migration 1972–2001, Contemporary Economic Policy, 24(2), 332–342.
45. Oliveira-Brochado, A. (2019). Google search-based sentiment indexes, IIMB Management Review, in press. https://doi. org/10.1016/j.iimb.2019.10.015
46. Pesaran, M.H., Shın, Y. and Smıth, R.J. (2001). Bounds testing approaches to the analysis of level relationships, Journal of Applied Econometrics, 16, 289–326.
47. Reuters (2020). Air France-KLM loss gives first taste of coronavirus impact. 7 May. www.reuters.com/article/us-air-franceklm- results/air-france-klm-loss-gives-first-taste-of-coronavirus- impact-idUSKBN22J0IZ, (Accessed 7 May 2020).
48. Salisu, A.A. and Vo, X.V. (2020). Predicting stock returns in the presence of COVID-19 pandemic: The role of health news, International Review of Financial Analysis, 71, 101546. https://doi.org/10.1016/j.irfa.2020.101546
49. Schell, D., Mei, W. and Toan Luu Duc, H. (2020). This time is indeed different: A study on global market reactions to public health crisis. 16 April. https://ssrn.com/abstract=3577418
50. Sevüktekin, M. and Nargeleçekenler, M. (2010). Ekonometrik Zaman Serileri Analizi Eviews Uygulamalı. Nobel Yayın Dağıtım 3. baskı, Ankara.
51. Shleifer, A. and Summers, L.H. (1990). The noise trader approach to finance, Journal of Economic Perspectives, 4 (2), 19–33.
52. Shleifer, A. and Vishny, R.W. (1997). The limits of arbitrage, Journal of Finance, 52(1). https://ssrn.com/abstract=8043
53. Shu, H.-C. (2010). Investor mood and financial markets, Journal of Economic Behavior & Organization, 76(2), 267–282.
54. Smales, L.A. (2017). The importance of fear: investor sentiment and stock market returns. Applied Economics, 49(34), 3395–3421.
55. Tas, O. and Sen, M.C. (2019). The comparative analysis of investor sentiment effect on two major earthquakes and tsunami incidents, PressAcademia Procedia, 10, 12–16.
56. Tetlock, P.C. (2007). Giving content to investor sentiment: The role of media in the stock market, Journal of Finance 62(3), 1139–1168.
57. Verma, R., Baklaci, H. and Gokce S. (2008). The impact of rational and irrational sentiments of individual and institutional investors on DJIA and S&P500 index returns, Applied Financial Economics, 18(16), 1303–1317.
58. World Bank, 2020. Assessing the impact and policy responses in support of private-sector firms in the context of the COVID-19 pandemic. Equitable Growth, Finance and Institutions, COVID-19 Notes, Finance Series. Washington DC, World Bank. http://pubdocs.worldbank.org/ en/879461586478617078/COVID-19-Outbreak-Supportto- Firms.pdf, (Accessed 26 March 2020).