Bank Stock Return Reactions to the COVID-19 Pandemic: The Role of Investor Sentiment in MENA Countries

Mohamed Albaity,Hasan Mustafa,Ray Saadaoui Mallek

doi:10.3390/risks10020043

Mohamed Albaity, Hasan Mustafa + Show 1 more

Open Access

https://doi.org/10.3390/risks10020043

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Journal: Risks	Publication Date: Feb 18, 2022
Citations: 13	License type: CC BY 4.0

Affiliation: University of Sharjah, Higher Colleges of Technology

Abstract

In this study, we investigated the impact of COVID-19 investor sentiment (CS), number of cases (CC), and deaths (CD) on bank stock returns in 16 MENA countries. In addition, we examined the interaction effects of CS with CC and CD on bank stock returns. Lastly, we looked at whether Islamic banks outperformed conventional banks during the pandemic. Based on monthly data from the Middle East and North Africa (MENA) countries from February 2020 to July 2021, we used the clustered standard error fixed effect estimation on Islamic and conventional bank stock market returns. The results suggest that CC and CD have negative impacts on bank stock market returns while CS has no effect, except for the lagged value. The interaction effect of CS with CC and CD on stock returns proved to strengthen the link in the current month and weaken the link in the previous month.

Highlights

Studies on the economic impacts of infectious diseases are not new
We examined the interaction effect between the main variables to gauge the dependence of the link between changes in COVID-19 cases/deaths and bank stock returns on the change of investor sentiment
This study investigated the impacts of the changes of COVID-19 cases and deaths on bank stock returns in Middle East and North Africa (MENA) countries

Summary

Introduction

Previous studies have examined the negative effects of SARS and the avian flu on stock markets in different countries (Chen et al 2007; Chen et al 2009; McAleer et al 2010; Yang and Chen 2009). The COVID-19 pandemic has had a far more prominent impact worldwide than all other viruses since the great influenza epidemic of 1918 (Spanish flu). Stock markets worldwide have suffered significant losses since the outbreak of the pandemic. The Dow Jones Industrial Average, FTSE, and the S&P 500 lost 20–25% of their value (Frezza et al 2021).

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