Investor sentiment response to COVID-19 outbreak-related news: A sectoral analysis of US firms

Capital markets literature has challenged the efficient market hypothesis, and one of the factors that explain unpredictable changes in stock prices is investor sentiment. In this study, we examine the investor sentiment index's response to COVID-19 outbreak-related events in 2020, based on a sample of the S&P 500 companies from the sectors most severely affected by the pandemic: healthcare, industrials, consumer goods and consumer services. Using principal component analysis, we determine objective market-based measures of the investor sentiment, both for sectors, and individual companies. Taking advantage of the event study methodology and using the Daily News Sentiment Index as a benchmark, we found that the abnormal investor sentiment index's response to COVID-19 outbreak-related news was highly negative, with a few exceptions of positive reaction on selected announcements in the healthcare and industrials sectors.