Are Investors’ Attention and Uncertainty Aversion the Risk Factors for Stock Markets? International Evidence from the Covid-19 Crisis

Are Investors’ Attention and Uncertainty Aversion the Risk Factors for Stock Markets? International Evidence from the Covid-19 Crisis

Badar Nadeem Ashraf, Falik Shear, Mohsin Sadaqat

In this paper, we examine the impact of investors’ attention to Covid-19 on stock market returns and the moderating effect of national culture on this relationship. Using daily data from 34 countries over the period January 23 to June 12, 2020, and measuring investors’ attention with the Google search volume (GSV) of the word “coronavirus” for each country, we find that investors’ enhanced attention to the Covid-19 pandemic results in negative stock market returns. Further, measuring the national culture with the uncertainty avoidance index (the aspect of national culture which measures the cross-country differences in decision-making under stress and ambiguity), we find that the negative impact of investors’ attention on stock market returns is stronger in countries where investors possess higher uncertainty avoidance cultural values. Our findings imply that uncertainty avoidance cultural values of investors promote financial market instability amid the crisis.

2021

covid-19, national culture, Stock market returns, uncertainty avoidance, investors’ attention

10.3390/risks9010002

Epidemiology and Health

Korean Society of Epidemiology

Insurance