Understanding Investor Sentiment: Analyzing Its Influence on Stock and Cryptocurrency Markets During the Russia–Ukraine War

Abstract

ABSTRACT This paper examines the shifts in investor sentiment during the Russia–Ukraine war and its consequent impact on market volatility. By employing a comprehensive dataset that includes the S&P 500 index, historical Bitcoin prices, the Investor Sentiment Index, the Industrial Production Index, and the US Consumer Price Index, this study applies several econometric models such as generalized autoregressive conditional heteroskedasticity (GARCH) models, regression analyses, vector error correction models (VECM), and the Granger causality model. The analysis spans from January 2021 to March 2023. The findings indicate that investor sentiment significantly influences returns in both stock and cryptocurrency markets, having a positive effect. These results underscore the importance for investors and policymakers to monitor investor sentiment during periods of conflict to understand its potential impact on financial markets. This research offers valuable insights that can guide investment decisions and inform policy interventions.