Stay-at-Home Stocks Versus Go-Outside Stocks: The Impacts of COVID-19 on the Chinese Stock Market
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Stay‑at‑Home Stocks Versus Go‑Outside Stocks: The Impacts of COVID‑19 on the Chinese Stock Market Dehua Shen1 · Wei Zhang1
© Springer Japan KK, part of Springer Nature 2020
Abstract This paper investigates the distinct market reactions to the COVID-19 outbreak by focusing on two groups of stocks in the Chinese stock market, i.e., the stay-at-home (SAH) stocks, and the go-outsides (GO) stocks. The empirical results mainly reveal that: (1) for the GO stocks, there exists a significantly negative return on the event date and the cumulative abnormal return reveals reversal pattern; (2) for the SAH stocks, no significantly negative return is observed on the event date and the cumulative abnormal return continues to increase; and (3) generally speaking, the reaction of the GO stocks supports the price pressure hypothesis, while the reaction of the SAH stocks supports the information diffusion hypothesis. Our results suggest that investors in the Chinese stock market could moderately interpret the good news but underestimate the bad news. Keywords COVID-19 · Information diffusion · Price pressure · Investor sentiment · Chinese stock market · Event study
1 Introduction Current literature has documented that major events, e.g., natural disasters (Bourdeau-Brien and Kryzanowski 2017), terrorist attacks (Chesney et al. 2011; Papakyriakou et al. 2019), political crises (Berkman et al. 2011), sports events (Chang et al. 2012; Edmans et al. 2007), TV series finales (Lepori 2015; Zhang et al. 2017), and aviation disasters (Kaplanski and Levy 2010), would have material impacts on the stock market. Meanwhile, the findings on the market reaction to the recommendations and media coverage (news hereafter) mainly summarize two hypotheses for the * Dehua Shen [email protected] Wei Zhang [email protected] 1
College of Management and Economics, Tianjin University, No. 92 Weijin Road, Nankai District, Tianjin 300072, People’s Republic of China
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underlying mechanisms. The information diffusion hypothesis (IDH) claims that if the news contains fundamental information, the changes in prices should be persistent and no price reversal would be observed. Conversely, the price pressure hypothesis (PPH) argues that the positive (negative) news only generates temporary buying (selling) pressure and the changes in prices will revert to the fundamental value. The recent outbreak of COVID-19 provides us with a unique setting to simultaneously investigate its impacts on stocks with distinct characteristics. In particular, we consider the event of the Wuhan lockdown on 23 January 2020 as a nationwide negative shock to the Chinese stock market and examine whether its impact on the stock market is driven by IDH and PPH. Our empirical strategy is organized as follows. First, we construct two groups of stocks by considering whether the listed firms’ main business is increased or decreased due to the lockdown event, i.e., the stay-at-home stocks (SAH stocks) and the go-outsides stocks (GO stocks). In particul
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