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 information mainly spillovers from volatility to sentiment indices, with the VIX being the most significant net transmitter. Within each asset class, there is a more pronounced spillover from volatility to sentiment compared to the reverse, implying that a significant portion of investor sentiment is volatility-driven. This relationship intensifies in turbulent economic periods, such as during the Global Financial Crisis, Brexit, the US-China trade war, and the COVID-19 pandemic. Our analysis also reveals that sentiment indices can transition from net receivers to net transmitters of shocks during turbulent periods. This can be explained by the echo chamber effect, where social media echo prevailing news signals, and some investors interpret repeated signals as genuinely new information. • Spillover between social media sentiment and market volatility among stock, bond, foreign exchange, and commodity markets. • Information mainly spillovers from volatility to sentiment indices, with the VIX being the most significant net transmitter. • Within each asset class, there is a more pronounced spillover from volatility to sentiment compared to the reverse. • Spillover relationship intensifies during the GFC, Brexit, the US-China trade war, and the COVID-19 pandemic. • During turbulent periods, sentiment can shift from receiving to transmitting shocks, echoing prevailing news signals.