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News and Markets in the Time of COVID-19

Published online by Cambridge University Press:  31 October 2023

Harry Mamaysky Open the ORCID record for Harry Mamaysky [Opens in a new window]
Harry Mamaysky*
Affiliation:
Finance Division, Columbia Business School
*
[email protected]
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Abstract

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The onset of COVID-19 was characterized by voluminous, negative news. Higher narrativity news topics (measured by textual proximity to articles describing the 1987 stock market crash and textual distance from Federal Reserve communications) were systematically associated with contemporaneous market responses, which were larger on high volatility days (hypersensitivity), and with markets–news feedback. Hypersensitive news topic-market pairs were associated with next-day reversals. A test using the news–markets relationship identifies a mid-March 2020 structural break, which was knowable by the end of April. Post break, markets and news became considerably less coupled, and hypersensitivity and reversals abated.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 59 , Issue 8 , December 2024 , pp. 3564 - 3600
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

I thank Charles Calomiris, Jennifer Conrad (the editor), Paul Glasserman, Markus Schwedeler (the referee), and Ivo Welch for their helpful suggestions, as well as seminar participants from Columbia, the 2021 European Winter Meeting of the Econometric Society, the Kansas City Fed, Maryland, the Office of the Comptroller of the Currency, QWAFAxNEW, UBS, and the 2020 Wolfe Research NLP and ML Conference. Jiashu Sun and Xinran Zhang provided excellent research assistance. An earlier version of this article appeared under the title “Financial Markets and News About the Coronavirus.”

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