IDEAS home Printed from https://ideas.repec.org/a/gam/jrisks/v9y2020i1p2-d466308.html
   My bibliography  Save this article

Are Investors’ Attention and Uncertainty Aversion the Risk Factors for Stock Markets? International Evidence from the COVID-19 Crisis

Author

Listed:
  • Falik Shear

    (Department of Management Sciences, National Textile University, Faisalabad 37610, Pakistan)

  • Badar Nadeem Ashraf

    (School of Finance, Jiangxi University of Finance and Economics, Nanchang 330013, China)

  • Mohsin Sadaqat

    (NUST Business School, National University of Sciences and Technology, Islamabad 44000, Pakistan)

Abstract

In this paper, we examine the impact of investors’ attention to COVID-19 on stock market returns and the moderating effect of national culture on this relationship. Using daily data from 34 countries over the period 23 January to 12 June 2020, and measuring investors’ attention with the Google search volume (GSV) of the word “coronavirus” for each country, we find that investors’ enhanced attention to the COVID-19 pandemic results in negative stock market returns. Further, measuring the national culture with the uncertainty avoidance index (the aspect of national culture which measures the cross-country differences in decision-making under stress and ambiguity), we find that the negative impact of investors’ attention on stock market returns is stronger in countries where investors possess higher uncertainty avoidance cultural values. Our findings imply that uncertainty avoidance cultural values of investors promote financial market instability amid the crisis.

Suggested Citation

  • Falik Shear & Badar Nadeem Ashraf & Mohsin Sadaqat, 2020. "Are Investors’ Attention and Uncertainty Aversion the Risk Factors for Stock Markets? International Evidence from the COVID-19 Crisis," Risks, MDPI, vol. 9(1), pages 1-15, December.
    • Handle: RePEc:gam:jrisks:v:9:y:2020:i:1:p:2-:d:466308
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-9091/9/1/2/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-9091/9/1/2/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Vlastakis, Nikolaos & Markellos, Raphael N., 2012. "Information demand and stock market volatility," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1808-1821.
    2. Fernandes, Marcelo & Medeiros, Marcelo C. & Scharth, Marcel, 2014. "Modeling and predicting the CBOE market volatility index," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 1-10.
    3. Daniel Andrei & Michael Hasler, 2015. "Investor Attention and Stock Market Volatility," The Review of Financial Studies, Society for Financial Studies, vol. 28(1), pages 33-72.
    4. Smith, Geoffrey Peter, 2012. "Google Internet search activity and volatility prediction in the market for foreign currency," Finance Research Letters, Elsevier, vol. 9(2), pages 103-110.
    5. Corbet, Shaen & Hou, Yang & Hu, Yang & Lucey, Brian & Oxley, Les, 2021. "Aye Corona! The contagion effects of being named Corona during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 38(C).
    6. Salisu, Afees A. & Ogbonna, Ahamuefula E. & Adewuyi, Adeolu, 2020. "Google trends and the predictability of precious metals," Resources Policy, Elsevier, vol. 65(C).
    7. Bijl, Laurens & Kringhaug, Glenn & Molnár, Peter & Sandvik, Eirik, 2016. "Google searches and stock returns," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 150-156.
    8. Mazur, Mieszko & Dang, Man & Vega, Miguel, 2021. "COVID-19 and the march 2020 stock market crash. Evidence from S&P1500," Finance Research Letters, Elsevier, vol. 38(C).
    9. Simeon Vosen & Torsten Schmidt, 2011. "Forecasting private consumption: survey‐based indicators vs. Google trends," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 30(6), pages 565-578, September.
    10. Yuan, Yu, 2015. "Market-wide attention, trading, and stock returns," Journal of Financial Economics, Elsevier, vol. 116(3), pages 548-564.
    11. Kamphol Panyagometh, 2020. "The Effects of Pandemic Event on the Stock Exchange of Thailand," Economies, MDPI, vol. 8(4), pages 1-22, October.
    12. Erdem, Orhan, 2020. "Freedom and stock market performance during Covid-19 outbreak," Finance Research Letters, Elsevier, vol. 36(C).
    13. Bilgin, Mehmet Huseyin & Demir, Ender & Gozgor, Giray & Karabulut, Gokhan & Kaya, Huseyin, 2019. "A novel index of macroeconomic uncertainty for Turkey based on Google-Trends," Economics Letters, Elsevier, vol. 184(C).
    14. D’Amuri, Francesco & Marcucci, Juri, 2017. "The predictive power of Google searches in forecasting US unemployment," International Journal of Forecasting, Elsevier, vol. 33(4), pages 801-816.
    15. Arkadiusz J. Derkacz, 2020. "Fiscal, Investment and Export Multipliers and the COVID-19 Pandemic Slowdowns Uncertainty Factor in the First Half of 2020," Risks, MDPI, vol. 8(4), pages 1-21, November.
    16. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    17. Goodell, John W., 2020. "COVID-19 and finance: Agendas for future research," Finance Research Letters, Elsevier, vol. 35(C).
    18. Vozlyublennaia, Nadia, 2014. "Investor attention, index performance, and return predictability," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 17-35.
    19. Lee A. Smales, 2020. "Investor attention and the response of US stock market sectors to the COVID-19 crisis," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 13(1), pages 20-39, December.
    20. Okorie, David Iheke & Lin, Boqiang, 2021. "Stock markets and the COVID-19 fractal contagion effects," Finance Research Letters, Elsevier, vol. 38(C).
    21. Lemieux, James & Peterson, Robert A., 2011. "Purchase deadline as a moderator of the effects of price uncertainty on search duration," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 33-44, February.
    22. Al-Awadhi, Abdullah M. & Alsaifi, Khaled & Al-Awadhi, Ahmad & Alhammadi, Salah, 2020. "Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 27(C).
    23. Mihail Busu, 2019. "The Role of Renewables in a Low-Carbon Society: Evidence from a Multivariate Panel Data Analysis at the EU Level," Sustainability, MDPI, vol. 11(19), pages 1-16, September.
    24. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    25. Zhang, Dayong & Hu, Min & Ji, Qiang, 2020. "Financial markets under the global pandemic of COVID-19," Finance Research Letters, Elsevier, vol. 36(C).
    26. Peltomäki, Jarkko & Graham, Michael & Hasselgren, Anton, 2018. "Investor attention to market categories and market volatility: The case of emerging markets," Research in International Business and Finance, Elsevier, vol. 44(C), pages 532-546.
    27. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2005. "Culture, Law, and Corporate Governance," International Review of Law and Economics, Elsevier, vol. 25(2), pages 229-255, June.
    28. Lahmiri, Salim & Bekiros, Stelios, 2020. "The impact of COVID-19 pandemic upon stability and sequential irregularity of equity and cryptocurrency markets," Chaos, Solitons & Fractals, Elsevier, vol. 138(C).
    29. Takeda, Fumiko & Wakao, Takumi, 2014. "Google search intensity and its relationship with returns and trading volume of Japanese stocks," Pacific-Basin Finance Journal, Elsevier, vol. 27(C), pages 1-18.
    30. Dzielinski, Michal, 2012. "Measuring economic uncertainty and its impact on the stock market," Finance Research Letters, Elsevier, vol. 9(3), pages 167-175.
    31. Gur Huberman & Tomer Regev, 2001. "Contagious Speculation and a Cure for Cancer: A Nonevent that Made Stock Prices Soar," Journal of Finance, American Finance Association, vol. 56(1), pages 387-396, February.
    32. Mišečka, Tomáš & Ciaian, Pavel & Rajčániová, Miroslava & Pokrivčák, Jan, 2019. "In search of attention in agricultural commodity markets," Economics Letters, Elsevier, vol. 184(C).
    33. Zhi Da & Joseph Engelberg & Pengjie Gao, 2011. "In Search of Attention," Journal of Finance, American Finance Association, vol. 66(5), pages 1461-1499, October.
    34. Swamy, Vighneswara & Dharani, M. & Takeda, Fumiko, 2019. "Investor attention and Google Search Volume Index: Evidence from an emerging market using quantile regression analysis," Research in International Business and Finance, Elsevier, vol. 50(C), pages 1-17.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. shear, Falik & Ashraf, Badar Nadeem, 2022. "The performance of Islamic versus conventional stocks during the COVID-19 shock: Evidence from firm-level data," Research in International Business and Finance, Elsevier, vol. 60(C).
    2. Ashraf, Badar Nadeem & Goodell, John W., 2022. "The impact of social cohesion on stock market resilience: Evidence from COVID-19," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    3. Qiuyun Wang & Lu Liu, 2022. "Pandemic or panic? A firm-level study on the psychological and industrial impacts of COVID-19 on the Chinese stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-38, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Papadamou, Stephanos & Fassas, Athanasios & Kenourgios, Dimitris & Dimitriou, Dimitrios, 2020. "Direct and Indirect Effects of COVID-19 Pandemic on Implied Stock Market Volatility: Evidence from Panel Data Analysis," MPRA Paper 100020, University Library of Munich, Germany.
    2. Hervé, Fabrice & Zouaoui, Mohamed & Belvaux, Bertrand, 2019. "Noise traders and smart money: Evidence from online searches," Economic Modelling, Elsevier, vol. 83(C), pages 141-149.
    3. Smales, L.A., 2021. "Investor attention and global market returns during the COVID-19 crisis," International Review of Financial Analysis, Elsevier, vol. 73(C).
    4. Peltomäki, Jarkko & Graham, Michael & Hasselgren, Anton, 2018. "Investor attention to market categories and market volatility: The case of emerging markets," Research in International Business and Finance, Elsevier, vol. 44(C), pages 532-546.
    5. Tihana Škrinjarić, 2019. "Time Varying Spillovers between the Online Search Volume and Stock Returns: Case of CESEE Markets," IJFS, MDPI, vol. 7(4), pages 1-30, October.
    6. Martina Halouskov'a & Daniel Stav{s}ek & Mat'uv{s} Horv'ath, 2022. "The role of investor attention in global asset price variation during the invasion of Ukraine," Papers 2205.05985, arXiv.org, revised Aug 2022.
    7. Georgios Bampinas & Theodore Panagiotidis & Christina Rouska, 2019. "Volatility persistence and asymmetry under the microscope: the role of information demand for gold and oil," Scottish Journal of Political Economy, Scottish Economic Society, vol. 66(1), pages 180-197, February.
    8. Christophe Desagre & Catherine D'Hondt, 2020. "Googlization and retail investors' trading activity," LIDAM Discussion Papers LFIN 2020004, Université catholique de Louvain, Louvain Finance (LFIN).
    9. Desagre, Christophe & D’Hondt, Catherine, 2021. "Googlization and retail trading activity," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    10. Halousková, Martina & Stašek, Daniel & Horváth, Matúš, 2022. "The role of investor attention in global asset price variation during the invasion of Ukraine," Finance Research Letters, Elsevier, vol. 50(C).
    11. Chaiyuth Padungsaksawasdi & Sirimon Treepongkaruna & Robert Brooks, 2019. "Investor Attention and Stock Market Activities: New Evidence from Panel Data," IJFS, MDPI, vol. 7(2), pages 1-19, June.
    12. Aharon, David Y. & Qadan, Mahmoud, 2018. "What drives the demand for information in the commodity market?," Resources Policy, Elsevier, vol. 59(C), pages 532-543.
    13. Chen, Zhongdong & Craig, Karen Ann, 2023. "Active attention, retail investor base, and stock returns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    14. González-Fernández, Marcos & González-Velasco, Carmen, 2020. "A sentiment index to measure sovereign risk using Google data," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 406-418.
    15. Gang Chu & John W. Goodell & Dehua Shen & Yongjie Zhang, 2022. "Machine learning to establish proxies for investor attention: evidence of improved stock-return prediction," Annals of Operations Research, Springer, vol. 318(1), pages 103-128, November.
    16. Smales, L.A., 2022. "Investor attention in cryptocurrency markets," International Review of Financial Analysis, Elsevier, vol. 79(C).
    17. Khaskheli, Asadullah & Zhang, Hongyu & Raza, Syed Ali & Khan, Komal Akram, 2022. "Assessing the influence of news indicator on volatility of precious metals prices through GARCH-MIDAS model: A comparative study of pre and during COVID-19 period," Resources Policy, Elsevier, vol. 79(C).
    18. Swamy, Vighneswara & Dharani, M. & Takeda, Fumiko, 2019. "Investor attention and Google Search Volume Index: Evidence from an emerging market using quantile regression analysis," Research in International Business and Finance, Elsevier, vol. 50(C), pages 1-17.
    19. Geng, Yuedan & Ye, Qiang & Jin, Yu & Shi, Wen, 2022. "Crowd wisdom and internet searches: What happens when investors search for stocks?," International Review of Financial Analysis, Elsevier, vol. 82(C).
    20. Goodell, John W. & Kumar, Satish & Li, Xiao & Pattnaik, Debidutta & Sharma, Anuj, 2022. "Foundations and research clusters in investor attention: Evidence from bibliometric and topic modelling analysis," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 511-529.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jrisks:v:9:y:2020:i:1:p:2-:d:466308. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.