Media sentiment and short stocks performance during a systemic crisis

During crisis periods, investors often engage in short selling of stocks, in line with their pessimistic view of the present and future market performance as well as with the hope to repurchase the stocks back in the future at much lower prices. This attitude not only affects stock returns, but also may lead to significant risk transmission among assets. Addressing this concern, our study examines the returns and volatility connectedness between media coverage index (MCI) and high short interest stocks during the recent Covid-19 pandemic. We document MCI as a net transmitter for all returns series, whereas the results for volatility series exhibits binary behavior, acting as either a transmitter or recipient depending on the considered sector of economic activity. We highlight that the healthcare and energy sector stocks behave as net recipients of both, returns and volatility; hence, a certain caution is required while including them in investment portfolios. Finally, the causality test indicates that the MCI is more strongly connected with stock returns than with volatilities, thus signaling that media, may not only provoke a rise in stock volatility, but cause intense risk transmission especially during a systemic crisis similar to Covid-19.