Financial market sentiment and stock return during the COVID-19 pandemic

Using 1,287,932 pieces of textual data from news media, we measure the financial market sentiment worldwide. We conduct the first international study of the effect of the financial market sentiment on stock return during the COVID-19 pandemic. Results show that the intensification of the epidemic adversely affects the stock market, but the increasing financial market sentiment increases the stock market return, even during the worst of the pandemic. Our results remain robust using alternative proxies. Additional analysis suggests that negative sentiment has a more significant impact on stock market returns than positive sentiment. Taken together, our findings confirm that negative financial market sentiment amplifies the impact of the crisis on the stock market, and positive financial market sentiment can help mitigate the losses caused by the shock.