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Abstract This paper specifically investigates the effects of US government emergency actions on the investor sentiment–financial institution stock returns relationship. Despite attempts by many studies, the literature still provides no answers concerning this nexus. Using a new firm-specific Twitter investor sentiment (TS) metric and performing a panel smooth transition regression for daily data on 66 S however, when moving to a strict government response (the overall government response index exceeds the 63.59 threshold), this positive effect becomes significant in the second regime. Moreover, the results show that the slope of the transition function is high, indicating an abrupt rather than a smooth transition between the first and second regimes. The results are robust and have important policy implications for policymakers, investment analysts, and portfolio managers.
Chebbi et al. (2024) studied this question.