Is It a Real COVID-19 Fear? A Cross-Industry Study of Fear on the Stock Market

Magdalena Jasiniak, Olga Krzeczewska, Anna Pluskota

Abstract


Theoretical background: According to many behavioural studies, emotions (e.g. fear, greed, overenthusiasm) strongly influence investment decisions and are one of the main sources of irrational behaviour.

Purpose of the article: The study aims at investigating the impact of fear related to the COVID-19 crisis on sector indices on the stock market, in the face of anticipatory restrictions imposed by the authorities. The paper illustrates the investors’ decisions affected by fear.

Research methods: The empirical study includes statistical analyses, in particular an analysis of the coefficient of variation.

Main findings: The highest increase in the implied volatility index, which is used as a proxy of fear, is noted for the period of uncertainty (before the decisive reactions of government), during which, investors’ reactions are the most strongly related to fear and the negative sentiment affects all the sectors.


Keywords


COVID-19; capital market; negative sentiment; implied volatility

Full Text:

PDF

References


Albulescu, C. (2020). Coronavirus and financial volatility: 40 days of fasting and fear. Available at SSRN 3550630. doi:10.2139/ssrn.3550630

Artim. (n.d.). Retrieved from artim.waw.pl/wiv20/

Baker, S.R., Bloom, N., Davis, S.J., Kost, K.J., Sammon, M.C., & Viratyosin, T. (2020). The unprecedented stock market impact of COVID-19 (No. w26945). National Bureau of Economic Research. Retrieved from https://www.nber.org/papers/w26945

Cao, H.H., Han, B., Hirshleifer, D., & Zhang, H.H. (2011). Fear of the unknown: Familiarity and economic decisions. Review of Finance, 15(1), 173–206. doi:10.1093/rof/rfp023

Copeland, M., Copeland, M., & Copeland, T. (2018). Industry rotation and time-varying sensitivity by VIX. The Journal of Portfolio Management, 44(6), 89–97. doi:10.3905/jpm.2018.44.6.089

Czyżycki R. (2012). Spółki teleinformatyczne jako spółki defensywne na giełdzie papierów wartościowych. Zeszyty Naukowe Uniwersytetu Szczecińskiego. Ekonomiczne Problemy Usług, 101(746), 81–89.

Dash, S.R., & Mahakud, J. (2013). Investor sentiment and stock return: Do industries matter? Margin: The Journal of Applied Economic Research, 7(3), 315–349. doi:10.1177/0973801013491530

Domańska, A., Gryglicka, A., & Samodulski, I. (2022). Reactions of family businesses to the initial effects of pandemic shock. Annales Universitatis Mariae Curie-Skłodowska, sectio H – Oeconomia, 56(1), 37–59.

Economou, F., Hassapis, C., & Philippas, N. (2018). Investors’ fear and herding in the stock market. Applied Economics, 50(34–35), 3654–3663. doi:10.1080/00036846.2018.1436145

Fernandes, N. (2020). Economic effects of coronavirus outbreak (COVID-19) on the world economy. Version 1.0. Retrieved from https://ssrn.com/abstract=3557504

Gassen, J., &Markarian, G. (2009). Investor fear and earnings management: VIX-based evidence. Unpublished Working Paper. Retrieved from https://www.uni-goettingen.de/de/104832.htmlde/document/download/1ce8ae33599a94662db49ad7c443fe8a.pdf/Vortrag_Joachim_Gassen_17-11-09.pdf

Iyer, S.R., & Harper, J.T. (2017). Cash flow volatility and investor sentiment. Managerial Finance, 43(2), 178–192. doi:10.1108/MF-02-2016-0045

Kahneman, D. (2012). Thinking, Fast and Slow. London: Penguin.

Keller, J., Koziński, J., Krzeczewski, B., & Pastusiak, R. (2013). Wpływ doświadczenia i wiedzy inwestorów na efektywność inwestycji na rynku kapitałowym. Zeszyty Naukowe Uniwersytetu Szczecińskiego. Finanse, Rynki Finansowe, Ubezpieczenia, 59, 535–544.

Krzeczewski, B. (2016). Are Polish healthcare stocks defensive? Acta Universitatis Lodziensis. Folia Oeconomica, 6(326). doi:10.18778/0208-6018.326.09

Lalancette, S., & Simonato, J.G. (2017). The role of the conditional skewness and kurtosis in VIX index valuation. European Financial Management, 23(2), 325–354. doi:10.1111/eufm.12096

Lo, A.W., Repin, D.V., & Steenbarger, B.N. (2005). Fear and greed in financial markets: A clinical study of day-traders. American Economic Review, 95(2), 352–359. Retrieved from https://www.nber.org/papers/w11243

Markowski, Ł., & Keller, J. (2020). Fear anatomy – an attempt to assess the impact of selected macroeconomic variables on the variability of the VIX S&P 500 index. Annales Universitatis Mariae Curie-Skłodowska, Sectio H – Oeconomia, 54(2), 41–51.

Onali, E. (2020). Covid-19 and stock market volatility. Available at SSRN 3571453.

Pastusiak, R. (2013). Czynniki psychologiczne a skuteczność inwestycyjna na rynku kapitałowym. Zarządzanie i Finanse, 2(4), 319–330.

Ramelli, S., & Wagner, A.F. (2020). Feverish stock price reactions to COVID-19. Swiss Finance Institute Research Paper, 9(3). doi:10.2139/ssrn.3550274

Rudzki, R. (2008). WIV20 – indeks zmienności implikowanej dla opcji na WIG20. Retrieved from http://artim.waw.pl/wiv20/

Sarwar, G. (2012). Is VIX an investor fear gauge in BRIC equity markets? Journal of Multinational Financial Management, 22(3), 55–65. doi:10.1016/j.mulfin.2012.01.003

Smales, L.A. (2014). News sentiment and the investor fear gauge. Finance Research Letters, 11(2), 122–130. doi:10.1016/j.frl.2013.07.003

Smales, L.A. (2017). The importance of fear: Investor sentiment and stock market returns. Applied Economics, 49(34), 3395–3422. doi:10.1080/00036846.2016.1259754

Smales, L.A. (2019). Spreading the fear: The central role of CBOE VIX in global stock market uncertainty. Available at SSRN 3336505. doi:10.2139/ssrn.3336505

Stooq.pl. (2020). Retrieved from https://stooq.pl

Wiśniewski A. (2019). Współczynnik beta – podział na spółki defensywne i ofensywne jest bardzo płynny. Retrieved from http://stockbroker.pl/wspolczynnik-beta-spolki-defensywne/

Whaley R.E. (1993). Derivatives on market volatility: Hedging tools long overdue. The Journal of Derivatives, 1(1). doi:10.3905/jod.1993.407868

Worldometers.info. (n.d.). Retrieved from https://www.worldometers.info/coronavirus/country/poland/

Zaremba, A., Kizys, R., Aharon, D.Y., & Demir, E. (2020). Infected markets: Novel coronavirus, government interventions, and stock return volatility around the globe. Finance Research Letters, 101597. doi:10.1016/j.frl.2020.101597




DOI: http://dx.doi.org/10.17951/h.2023.57.3.123-138
Date of publication: 2023-12-11 07:08:21
Date of submission: 2023-04-03 15:33:50


Statistics


Total abstract view - 373
Downloads (from 2020-06-17) - PDF - 0

Indicators



Refbacks

  • There are currently no refbacks.


Copyright (c) 2023 Magdalena Jasiniak, Olga Krzeczewska, Anna Pluskota

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.