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COVID caused a negative bubble. Who profited? Who lost? How stock markets changed?

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  • Ülkü, Numan
  • Ali, Fahad
  • Saydumarov, Saidgozi
  • İkizlerli, Deniz

Abstract

Compiling a unique, worldwide collection of trading data, we analyze investor types' aggregate trading in stock markets throughout the COVID-19 episode, to assess investor types' role in a worldwide negative bubble and their degree of sophistication in responding to it. Individual investors were the main buyers and consequently the winners during the rebound. Foreign institutional investors exited host markets; some domestic institutions exploited the negative bubble by well-timed buying. In US index futures, asset managers heavily sold into crash; dealers profited from the rebound. Individual investors' buying was driven by their contrarian behavioral traits and a unique positive shock to retail investor demand for self-serviced investing in stocks, driven by work-from-home practices and unprecedented stimulus. This shock has changed the participant composition of world stock markets. Overall, the COVID-19 episode has many unique aspects that cannot be accounted for under existing theories.

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  • Ülkü, Numan & Ali, Fahad & Saydumarov, Saidgozi & İkizlerli, Deniz, 2023. "COVID caused a negative bubble. Who profited? Who lost? How stock markets changed?," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23001105
    DOI: 10.1016/j.pacfin.2023.102044
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    More about this item

    Keywords

    Investor types' trading behavior; COVID-19; Negative bubble; Retail investors;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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