Spillover Between Investor Sentiment and Volatility : The Role of Social Media

We examine the spillover effects between social media sentiments and market-implied volatilities among stock, bond, foreign exchange, and commodity markets. We find that informational spillover comes mainly from volatility indices to sentiment indices, with the VIX being the most significant net transmitter. Within each asset class, there is a stronger spillover from volatility to the sentiment, but a marginal effect for the opposite direction. The connectedness between sentiment and volatility increases in turbulent economic periods, such as the Global Financial Crisis, Brexit, the US-China trade war, and the COVID-19 pandemic. Furthermore, sentiment indices can switch from being a net receiver to a net transmitter of shocks during turbulent periods. This can be explained by the “echo chamber” effect where social media repeat existing news media signals, but some investors interpret repeated signals as genuinely new information