The U.S. debt ceiling standoff and financial markets’ reactions

This paper examines how investor sentiment influenced digital and traditional asset prices during the 2023 U.S. debt ceiling standoff. Using a novel sentiment index constructed from Google Trends data, we analyze the dynamic relationship between sentiment and market returns with wavelet coherence, cross-quantilogram, and connectedness methods. Results reveal a negative association between sentiment and financial market performance, with the sentiment index acting as a key recipient of systemic spillovers. These findings suggest that heightened fiscal uncertainty amplifies market volatility, creating opportunities for contrarian strategies, such as reallocating cash into Treasury securities during the crisis and reversing positions afterward. By linking political uncertainty, investor attention, and cross-market dynamics, this study provides new insights into the interaction between fiscal policy debates and both digital and non-digital asset markets.