Investor attention and global market returns during the COVID-19 crisis

Lee Smales

International Review of Financial Analysis, 2021, vol. 73, issue C

Abstract: The financial market response to the COVID-19 pandemic provides the first example of a market crash instigated by a health crisis. As such, the crisis provides a unique setting in which to examine the market response to changes in investor attention. We utilise Google search volume (GSV) as a proxy for investor attention. GSV for the “coronavirus” keyword increases markedly from late-February and peaks in mid-March before declining substantially. Our results are broadly consistent with Da, Engelberg, and Gao (2015), indicating that GSV is primarily a proxy for the attention of retail investors and confirming that investor attention negatively influences global stock returns during this crisis period. A rise in the number of internet searches during the COVID-19 crisis induces a faster rate of information flow into financial markets and so is also associated with higher volatility. The identified relationships are economically and statistically significant even after controlling for the number of COVID-19 cases and macroeconomic effects. Increases in GSV have less impact on government bond yields where the limited role of GSV is likely due to lower participation of retail investors. The results suggest that, rather than searching for information on potential stocks to buy (Barber & Odean, 2008), retail investors are searching for information to resolve uncertainty about household FEARS (Da et al., 2015) during the COVID-19 crisis.

Keywords: Investor attention; Stock market returns; Google search volume; COVID-19; Coronavirus (search for similar items in EconPapers)
JEL-codes: G01 G10 G14 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (71)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:73:y:2021:i:c:s1057521920302593

DOI: 10.1016/j.irfa.2020.101616

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