COVID-19 fear index: does it matter for stock market returns?

The purpose of this paper is to capture the investors' mood related to the COVID-19 pandemic and analyze its impact on the stock market returns.

To capture the investor mood related to the COVID-19 pandemic, the authors construct a unique COVID-19 fear index based on the Search Volume Index (SVI) from Google Trends (http://www.Google.com/trends/) of the search terms related to COVID-19 words and phrases as revealed by Google and Internet dictionaries. The COVID-19 fear index was used to investigate its impact on the stock market returns.

The study finds a strong negative association between COVID-19 fear and stock returns. Unlike other studies, the relationship is persistent for a significant period. This relationship is not found to reverse in the following days. The results also highlight that COVID-19 fear strongly impacts the stock market. The sentiment persists for a significant period and is not reversed soon, unlike the regular times in earlier studies.

The study is among the very few studies that constructed COVID-19 fear index using several Google search terms and captured its impact on the stock market returns.