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COVID-19 pandemic effect on trading and returns: Evidence from the Chinese stock market

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  • Bing, Tao
  • Ma, Hongkun

Abstract

Using a daily foreign and institution flows data, this paper studies how institutional and foreign investors respond to the COVID-19 pandemic events in China. The results indicate that during the COVID-19 crisis foreign investors play a market stabilization role showing significant negative feedback trading, whereas institution investors do not stabilize the market. And compared to the pre-COVID-19 period, foreign investors even exhibit stronger negative feedback trading. Further analyses confirm that foreign investors’ negative feedback is mainly driven by their response to negative returns. Moreover, both institutional and foreign investors’ trading show stronger forecastability of future returns during the pandemic period. And the negative returns after foreigners’ selling and positive returns after institutional buying are much stronger during the crisis period.

Suggested Citation

  • Bing, Tao & Ma, Hongkun, 2021. "COVID-19 pandemic effect on trading and returns: Evidence from the Chinese stock market," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 384-396.
    • Handle: RePEc:eee:ecanpo:v:71:y:2021:i:c:p:384-396
    DOI: 10.1016/j.eap.2021.05.012
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    More about this item

    Keywords

    COVID-19; Foreign investors; Institutional investors; Negative feedback trading; Chinese stock market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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