Abstract
Existing studies on the COVID-19 pandemic and vaccine development have primarily documented their effects on stock markets, with limited attention to international financial markets. This paper constructs a news-based sentiment index on COVID-19 vaccine development and examines its effects on international financial markets during the first year of the pandemic. We find positive vaccine sentiment decreases the CBOE Volatility Index (VIX) while boosting capital inflows and currency appreciation in emerging markets. It also reduces the unit price of risk in the context of carry trade risk premiums, as positive developments lower future risk and economic uncertainty.
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