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Stock bubbles under sudden public crises: A perspective from the excessive financialization of firms

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  • Wang, Jiaxin
  • Zhu, Zhaowei
  • Huang, Xiang

Abstract

This paper examines the crowding-out effect of the sudden onset of COVID-19 on the share price bubbles of over-financialized firms, and identifies the mechanisms responsible for this effect. Our findings suggest that COVID-19 has a significant crowding-out effect on the share price bubbles of over-financialized firms, which can be attributed to its impact on subjective investor sentiment and objective stock liquidity. The crowding-out effect is heterogeneous between different ownership, debt structure, and COVID-19 pandemic shocks. Our research suggests that the virtual economy may face a higher risk of the bubble bursting under the sudden public shock.

Suggested Citation

  • Wang, Jiaxin & Zhu, Zhaowei & Huang, Xiang, 2023. "Stock bubbles under sudden public crises: A perspective from the excessive financialization of firms," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005615
    DOI: 10.1016/j.frl.2023.104189
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    1. Gao, Yuqiang & Wang, Zishuai & Wang, Kaihua & Zhang, Ruiai & Lu, Yuchen, 2023. "Effect of big data on enterprise financialization: Evidence from China's SMEs," Technology in Society, Elsevier, vol. 75(C).
    2. Dettoni, Robinson & Gil-Alana, Luis A. & Yaya, OlaOluwa S., 2024. "Stock market prices and Dividends in the US: Bubbles or Long-run equilibria relationships?," International Review of Financial Analysis, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Corporate over-financialization; Stock price bubbles; Investor sentiment; Liquidity constraints;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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