Anxiety for the pandemic and trust in financial markets

TL;DR

This study investigates how pandemic-related anxiety, measured via Google searches, correlates with trust in financial markets, revealing country-specific mood shifts and the impact of government responses during COVID-19.

Contribution

It introduces a novel approach using Google search data as a proxy for anxiety to analyze its effect on financial market sentiment across countries.

Findings

Countries show distinct clusters of optimism and pessimism.

Mid-June 2020 saw a rise in optimism across markets.

Less strict lockdowns correlated with higher optimism levels.

Abstract

The COVID-19 pandemic has generated disruptive changes in many fields. Here we focus on the relationship between the anxiety felt by people during the pandemic and the trust in the future performance of financial markets. Precisely, we move from the idea that the volume of Google searches about "coronavirus" can be considered as a proxy of the anxiety and, jointly with the stock index prices, can be used to produce mood indicators -- in terms of pessimism and optimism -- at country level. We analyse the "very high human developed countries" according to the Human Development Index plus China and their respective main stock market indexes. Namely, we propose both a temporal and a global measure of pessimism and optimism and provide accordingly a classification of indexes and countries. The results show the existence of different clusters of countries and markets in terms of pessimism and optimism. Moreover, specific regimes along the time emerge, with an increasing optimism spreading during the mid of June 2020. Furthermore, countries with different government responses to the pandemic have experienced different levels of mood indicators, so that countries with less strict lockdown had a higher level of optimism.