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A sentiment index to measure sovereign risk using Google data

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  • González-Fernández, Marcos
  • González-Velasco, Carmen

Abstract

The aim of this paper is to construct an index that reflects investor sentiment regarding sovereign debt markets and to analyze this index to predict the evolution of sovereign risk. This Google Sovereign-Risk Sentiment Index (GSSI) is constructed by aggregating Google search data for a set of keywords related to the sovereign debt crisis that took place in Europe. The results indicate that the GSSI shows a high correlation with other sovereign risk indexes. Moreover, we analyze through panel data regressions its relationship with sovereign Credit Default Swaps (CDSs) for a set of European countries in the period 2008–2017. We determine that the GSSI shows the expected positive relationship with sovereign risk, especially in peripheral countries and during the period of maximum financial distress in sovereign debt markets. Our findings contribute to the investor sentiment literature and provide a novel measure of sovereign risk. These results suggest several implications for public authorities and regulators.

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  • González-Fernández, Marcos & González-Velasco, Carmen, 2020. "A sentiment index to measure sovereign risk using Google data," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 406-418.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:406-418
    DOI: 10.1016/j.iref.2020.05.011
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    More about this item

    Keywords

    Sovereign risk; Google data; Internet activity; Investor sentiment; Sovereign debt crisis;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G40 - Financial Economics - - Behavioral Finance - - - General

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