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Natural Disaster Effects on Popular Sentiment Toward Finance

Published online by Cambridge University Press:  23 July 2021

Manish Jha Open the ORCID record for Manish Jha [Opens in a new window] ,
Hongyi Liu  and
Asaf Manela
Manish Jha*
Affiliation:
Georgia State University Robinson College of Business
Hongyi Liu
Affiliation:
Washington University in St. Louis Arts and Sciencehongyi.liu@wustl.edu
Asaf Manela
Affiliation:
Washington University in St. Louis Olin Business School and IDC Herzliyaamanela@wustl.edu
*
mjha@gsu.edu (corresponding author)
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Abstract

We use a text-based measure of popular sentiment toward finance to study how finance sentiment responds to rare historical disasters and to the ongoing COVID-19 pandemic. Finance sentiment declines after epidemics and earthquakes but rises following severe droughts, floods, and landslides. These heterogeneous effects suggest finance sentiment responds differently to the realization of insured versus uninsured risks. Finance sentiment declines at the start of the COVID-19 pandemic, but recovers in countries that experienced high stock markets returns and that responded with large fiscal spending. Finance sentiment seems to depend on the insurance provided by private markets and by public finance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 7: JFQA Symposium on the Consequences of the COVID-19 Pandemic for Firms and Capital Markets , November 2021 , pp. 2584 - 2604
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank Ran Duchin and Jarrad Harford for detailed comments. We also thank Yves-Paul Auffray, Joseph Kloecker, David Lindequist, Rodrigo Moser, Andrea Paloschi, Rita Podledneva, Tatiana Vdovina, Juan Ignacio Vizcaino, and seminar participants at the University of Connecticut, Virtual Finance Seminar, and Washington University in St. Louis for helpful comments. Computations used the Washington University Center for High Performance Computing, which is partially funded by NIH grant S10 OD018091.

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