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How does the COVID-19 pandemic shape the relationship between Twitter sentiment and stock liquidity of US firms?

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  • Ammari, Aymen
  • Chebbi, Kaouther
  • Ben Arfa, Nouha

Abstract

Using a new investor sentiment metric derived from Twitter, this paper examines how the pandemic's death rate influences the impact of investor sentiment on stock liquidity. Recent literature remains inconclusive regarding the effect of COVID-19 information and investor sentiment on financial markets. Using panel smooth transition regression (PSTR) for daily data on 338 listed firms in the S&P500 from January 2, 2020, to May 26, 2021, the findings reveal that the impact of Twitter sentiment on stock liquidity is nonlinear and changes over time and across firms in the function of the pandemic's death rate in the US. The results exhibit a threshold level of 4.32%, above which investor sentiment boosts stock liquidity. The speed of the transition from low to high pandemic death rate regime occurred abruptly rather than smoothly. This translates to severe changes in investor perception and demonstrates that investors are rapidly updating their beliefs during the COVID-19 outbreak.

Suggested Citation

  • Ammari, Aymen & Chebbi, Kaouther & Ben Arfa, Nouha, 2023. "How does the COVID-19 pandemic shape the relationship between Twitter sentiment and stock liquidity of US firms?," International Review of Financial Analysis, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finana:v:88:y:2023:i:c:s1057521923001497
    DOI: 10.1016/j.irfa.2023.102633
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    More about this item

    Keywords

    Investor sentiment; Stock liquidity; COVID-19 pandemic; Panel smooth transition regression model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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