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The asymmetric effect of COVID-19 on investor sentiment: evidence from NARDL model

Author

Listed:
  • Mehdi Mili
  • Asma Yahiya Al Amoodi
  • Hana Bawazir

Abstract

Purpose - This study aims to investigate the asymmetric impact of daily announcements regarding COVID-19 on investor sentiment in the stock market. Design/methodology/approach - This study uses a Non-Linear Autoregressive Distribution Lag (NARDL) model that relies on positive and negative partial sum decompositions of the Coronavirus indicators. Five investor sentiments had been used and the analysis is conducted on the full sample period from 24th February 2020 to 25th March 2021. Findings - The results show that new cases have a greater impact on investor sentiment compared to daily announcements of new deaths related to COVID-19. In addition to revealing a significant impact of new COVID-19 new cases and new death announcements on a daily basis on investor sentiment over the short- and long-term, this paper also highlights the nonlinearity and asymmetry of this relationship in the short and long run. Investors' sentiments are more affected by negative news regarding Covid 19 than positive news. Originality/value - Financial markets have been severely affected by COVID-19 pandemic. This study is the first to measure the extent of reaction of investors to positive and negative announcements of COVID-19. Interestingly, this study examines the asymmetric effect of daily announcements on new cases and new deaths by COVID-19 on investor sentiments and derive many implications for portfolio managers.

Suggested Citation

  • Mehdi Mili & Asma Yahiya Al Amoodi & Hana Bawazir, 2023. "The asymmetric effect of COVID-19 on investor sentiment: evidence from NARDL model," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 16(1), pages 60-84, January.
    • Handle: RePEc:eme:rbfpps:rbf-02-2022-0068
    DOI: 10.1108/RBF-02-2022-0068
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    More about this item

    Keywords

    Optimistic; Pessimistic; Behavioral finance theory; NARDL; G10; G14; G18;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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