What threatens stock market returns under the COVID-19 crisis in China: the pandemic itself or the media hype around it?

The outbreak of the COVID-19 pandemic received widespread media attention, and global financial markets reacted strongly to the pandemic shocks. It is, therefore, worthwhile to detect the influence of media hype about COVID-19 and the pandemic index on stock market price returns. Utilising a newly developed non-linear ARDL model, our empirical outcomes show that the direct effect of the COVID-19 pandemic index on sectoral stock market returns is generally weak and significant only in the Energy, Financials, and Health Care sectors. In contrast to the direct effect of the COVID-19, we find that the media hype index pronouncedly affects sectoral stock market returns, with a significant negative effect in most sectors and with asymmetry. The dynamic asymmetric causality test has been applied for robustness check, where there is time-varying asymmetric causality from media hype to sectoral stock markets. These findings help investors with different investment horizons in emerging markets understand sector-level stock price dynamics and formulate investment strategies during the pandemic. Furthermore, market regulators should consider asymmetric effects over time when formulating strategies and making policy decisions.