News Sentiment and Financial Assets Returns during COVID-19

Abstract

This study is the first to document the impact of news sentiment on different classes of assets’ returns (stocks, bonds, oil, natural gas, gold, commodities, and foreign exchange rate) during the COVID-19 pandemic. By using time-varying causality test, we find that the causality running from sentiment to asset returns increases remarkably during the pandemic, mainly during March and April, 2020. The causality effect of sentiment is the highest on S&P 500 index. When examining the dynamic connectedness between sentiment and asset returns, we find that the connectedness is higher during the pandemic for all assets and the increase in connectedness is prolonged during the pandemic for certain assets such as natural gas, bond, commodity and S&P 500. Overall, the pandemic caused greater sentiment predictability on asset returns.