The Impact of Sentiment on Emerging Stock Markets

For five leading emerging economies: China, India, Russia, Indonesia, and South Korea, we show that existing sentiment variables both direct (Consumer Confidence Index) and indirect (Baker-Wurgler Index) – are insignificant in explaining respective nations' index returns. We further show that a new text-based sentiment variable, based on the speeches of the central bank, better explains the stock market returns and renders existing sentiment variables insignificant in its presence. The new sentiment variable is adapted from Anand et al. [2021] and uses valence shifters and sentence as a unit of sentiment quantification