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Pandemic outbreak, investor sentiment and stock market reaction: Evidence from the frontier market, Sri Lanka

Ravi Dilantha Rathnasekara|Neelangie Sulochana Nanayakkara
경제연구소 (Hanyang Economic Research Institute)|2022.08|Journal of Economic Research (JER)|제27권 제2호|pp. 119-148|DOI 10.17256/jer.2022.27.2.002

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참고문헌

키워드

COVID-19 PandemicMarket EfficiencyFrontier MarketInvestor SentimentPortfolio Returns
주제분류경제학

초록

This paper examines the impact of the COVID-19 pandemic, and the resulting investor-sentiment in determining portfolio returns of healthcare, telecommunication, insurance, banking and hotel sector companies in the Colombo Stock Exchange, Sri Lanka. A first-stage event study methodology and a second-stage regression-based methodology are adopted to evaluate the impact of pandemic-related-news to identify the influence of investor-sentiment on sector portfolio returns and its persisting effects. The most striking phenomenon is positive and persisting Cumulative Average Abnormal Returns perceived after a long Island-wide lockdown curfew is lifted on 11-May-2020. Results of a second-stage regression-based analysis indicate an initial negative sentiment, followed by a positive sentiment thereafter. The initial negative effect is relatively robust on banks and hotel sector stocks. A positive sentiment emanates from over-reaction to the subsequent rebound. CSE-investors are more sensitive to local events than to global news, and are likely to react based on psychological biases, signifying irrational investor behaviour.

Abstract

This paper examines the impact of the COVID-19 pandemic, and the resulting investor-sentiment in determining portfolio returns of healthcare, telecommunication, insurance, banking and hotel sector companies in the Colombo Stock Exchange, Sri Lanka. A first-stage event study methodology and a second-stage regression-based methodology are adopted to evaluate the impact of pandemic-related-news to identify the influence of investor-sentiment on sector portfolio returns and its persisting effects. The most striking phenomenon is positive and persisting Cumulative Average Abnormal Returns perceived after a long Island-wide lockdown curfew is lifted on 11-May-2020. Results of a second-stage regression-based analysis indicate an initial negative sentiment, followed by a positive sentiment thereafter. The initial negative effect is relatively robust on banks and hotel sector stocks. A positive sentiment emanates from over-reaction to the subsequent rebound. CSE-investors are more sensitive to local events than to global news, and are likely to react based on psychological biases, signifying irrational investor behaviour.

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