Twitter sentiment and stock market: a COVID-19 analysis

Purpose Using textual analysis the authors study the relationship between social media sentiments and stock markets during the COVID-19 pandemic. Design/methodology/approach The study analysis is based on a sample of 1,616,007 tweets over the period January to June 2021 for seven countries. The authors process the tweets via the VADER analyzer thereby producing both positive and negative sentiment measures. Findings Particularly, the authors prove that higher positivism is associated with a short-term increase in stock prices. On the other side, negativism relates inversely to stock prices with long-term impact, in the case of English-spoken countries. Notably, the study results remain robust to the inclusion of various control variables, including virtual fear and Google vaccine indexes. Finally, the authors prove that positivism is associated with higher returns and lower volatility in the short-run, while negativism is linked with lower returns in the short run. Practical implications The study analysis also has significant policy implications for researchers, investors and policymakers. First, researchers can employ our measures to quantify market sentiments and expand their research arsenal to incorporate social media trends, thus providing better explanatory power. Second, during times of severe uncertainty such as in a pandemic period, investors could beneficially take into account our textual measures and empirical results when using asset pricing models or constructing their portfolios. Third, the finding that the stock market is heavily governed by sentimental behaviors, especially during crisis periods, implies that policymakers including central banks, governments and capital market commissions must consider these sentiments before exerting their policies. In this regard, governments can effectively develop policy tools and approaches to manage recovery from the pandemic, which translates to greater long-term economic resilience. Moreover, central banks should accordingly adjust their monetary policy measures in order to stabilize financial markets, and by extension, to stop the pandemic from turning into a renewed financial crisis. For example, asset purchase program is considered the main instrument of this kind of intervention. Originality/value The authors confirm that this work is original and has not been published elsewhere, nor is it currently under consideration for publication elsewhere. The paper should be of interest to readers in the areas of finance.