Date of Award

6-2022

Document Type

Open Access

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Eshragh Motahar

Keywords

Finance, Sentiment, Behavioral Economics, Market Psychology, Efficient Market Hypothesis, COVID-19, Stock Market, Bond Market

Abstract

This thesis aims to build on existing research of market psychology and the effect of sentiment on financial markets. The main objective of this study is to determine the ability of investors to make rational decisions during the most recent period of high sentiment. The anomalies that have occurred in the stock market can be better understood by market psychology which focuses on the biases and social factors that influence investors. The media is a newly relevant factor impacting the volume of sentiment present in the market. A review of literature reveals that many studies of sentiment and financial market’s conclude that emotion has a promitment influence on investors decision. The current pandemic has had detrimental effects on human life and human livelihood. A unique economic situation has emerged as uncertainty increased and resulted in extreme volatility in financial markets that cannot be explained by mainstream financial theories and rational decision making alone. This thesis expands on recent literature about the pandemic and attempts to understand the market movements by looking at a range of explanatory data reflecting panic, sentiment, fake news, and infodemics in the media alongside measures of fundamental economic conditions to assess irrational decisions during the pandemic. I will use these measures to test sentiment and the media's significance on the S&P500 and the 10 year treasury yield in the US for 2020 and 2021. This model identifies when sentiment has the most influence on investment decisions and how. Furthermore, I evaluate how investors treat the bond market differently than the stock market.

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In Copyright - Educational Use Permitted.