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A sentiment-based modeling and analysis of stock price during the COVID-19: U- and Swoosh-shaped recovery

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  • Rai, Anish
  • Mahata, Ajit
  • Nurujjaman, Md
  • Majhi, Sushovan
  • Debnath, Kanish

Abstract

In the aftermath of stock market crash due to COVID-19, not all sectors recovered in the same way. Recently, a stock price model is proposed by Mahata et al. (2021) that describes V- and L-shaped recovery of the stocks and indices, but fails to simulate the U- and Swoosh-shaped recovery that arises due to sharp fall, continuation at the low price and followed by quick recovery, slow recovery for longer period, respectively. We propose a modified model by introducing a new parameter θ=+1,0,−1 to quantify investors’ positive, neutral and negative sentiments, respectively. The model explains movement of sectoral indices with positive financial anti-fragility (ϕ) showing U- and Swoosh-shaped recovery. Simulation using synthetic fund-flow with different shock lengths, ϕ, negative sentiment period and portion of fund-flow during recovery period show U- and Swoosh-shaped recovery. It shows that recovery of indices with positive ϕ becomes very weak with extended shock and negative sentiment period. Stocks with higher ϕ and fund-flow show quick recovery. Simulation of Nifty Bank, Nifty Financial and Nifty Realty show U-shaped recovery and Nifty IT shows Swoosh-shaped recovery. Simulation results are consistent with stock price movement. The estimated time-scale of shock and recovery of these indices are also consistent with the time duration of change of negative sentiment from the onset of COVID-19. We conclude that investors need to evaluate sentiment along with ϕ before investing in stock markets because negative sentiment can dampen the recovery even in financially anti-fragile stocks.

Suggested Citation

  • Rai, Anish & Mahata, Ajit & Nurujjaman, Md & Majhi, Sushovan & Debnath, Kanish, 2022. "A sentiment-based modeling and analysis of stock price during the COVID-19: U- and Swoosh-shaped recovery," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 592(C).
    • Handle: RePEc:eee:phsmap:v:592:y:2022:i:c:s0378437121009778
    DOI: 10.1016/j.physa.2021.126810
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