News sentiment and the investor fear gauge

- This note intersects these two developing avenues of research in financial economics.
- The relationship between news sentiment and changes in implied volatility is studied.
- A negative contemporaneous relationship between changes in VIX and news sentiment.
- The relationship is asymmetric whereby changes in VIX are larger following the release of negative news items.
- The relationship between news and VIX is stronger in times of market turmoil.

This note examines the relationship between aggregate news sentiment and changes in the implied volatility index (VIX). A significant negative contemporaneous relationship between changes in VIX and news sentiment is discovered. The relationship is asymmetric whereby changes in VIX are larger following the release of negative news items.