IMPACT OF MAJOR NEWS EVENTS ON INVESTOR SENTIMENT AND HERD BEHAVIOR: A STUDY ON COVID-19 PANDEMIC

ABSTRACT To test the impact of the significant news events during the COVID-19 epidemic to the Indian stock market, this study makes the use of NIFTY-50 index for the analysis of the investors’ sentiment and the extent of the herd mentality. As a result of analysing news data, sentiment scores have been obtained to measure the reactions of investors with the help of various sentiment analysis tools, including VADER, BERT, and FinBERT. The study then used the Cumulative Abnormal Returns (CAR) results to demonstrate the positive and significant relationship between sentiment and market returns using the random forest, gradient boosting and extreme gradient boosting regressors. Besides, cross sectional measures of CSAD and CSSD established that herding behaviour was prominent during periods of high volatility. These results indicate that particularly during crises investor activity significantly influences market dynamics and encourages group action. Thus, this research helps to expand knowledge of the psychological factors influencing financial markets and to provide recommendations for practical improvements in decision-making and improving the stability of financial markets in conditions of uncertainty. Keywords - Investor Sentiment, Herd Behaviour, COVID-19, Sentiment Analysis, Stock Market