THE CONNECTEDNESS BETWEEN THE SENTIMENT INDEX AND STOCK RETURN VOLATILITY UNDER COVID-19: A TIME-VARYING PARAMETER VECTOR AUTOREGRESSION APPROACH

Abstract

We analyze the connectedness between the sentiment index and the return and volatility of the crude oil, stock and gold markets by employing the time-varying parameter vector autoregression model vis-à-vis the coronavirus disease (COVID-19) epidemic. Our sentiment index is constructed via text mining technology. We also employ a network to visualize and better understand the structure of the connectedness. The results confirm that the sentiment index is the net pairwise directional connectedness receiver, while the infectious disease equity market volatility tracker is the transmitter. Furthermore, the impact of the COVID-19 pandemic on the total connectedness of volatility is unprecedented.