Investor Sentiment, Volatility in Stock Returns, and Liquidity in the Context of the Covid-19 Pandemic

Abstract

This study investigates the nexus between investor sentiment and market volatility of 04 market sectors listed on the Ho Chi Minh City Stock Exchange (HOSE) from 02/01/2018 to 30/6/2022. Furthermore, this study also analyses the effects of the Covid-19 pandemic on the Vietnam stock market based on the impact of Covid-19 on investor sentiment. We used the principal component analysis (PCA) method to measure the sentiment index and combined it with ARMA-GARCH processes to conduct market volatility. The estimated results revealed a positive correlation between investor sentiment and market volatility. Besides, this study confirmed that investor sentiment driven by Covid-19 infected cases information led to higher volatility of returns across four sectors, while this information did not have effect on liquidity volatility.