Abstract
As the 2019 novel coronavirus disease (COVID-19) pandemic rages globally, its impact has been felt in the stock markets around the world. Amidst the gloomy economic outlook, certain sectors seem to have survived better than others. This paper aims to investigate the sectors that have performed better even as market sentiment is affected by the pandemic. The daily closing stock prices of a total usable sample of 1,567 firms from 37 sectors are first analyzed using a combination of hierarchical clustering and shape-based distance (SBD) measures. Market sentiment is modeled from Google Trends on the COVID-19 pandemic. This is then analyzed against the time series of daily closing stock prices using augmented vector autoregression (VAR). The empirical results indicate that market sentiment towards the pandemic has significant effects on the stock prices of the sectors. Particularly, the stock price performance across sectors is differentiated by the level of the digital transformation of sectors, with those that are most digitally transformed, showing resilience towards negative market sentiment on the pandemic. This study contributes to the existing literature by incorporating search trends to analyze market sentiment, and by showing that digital transformation moderated the stock market resilience of firms against concern over the COVID-19 outbreak.
Highlights
The onslaught of the 2019 novel coronavirus disease (COVID-19) pandemic has impacted stock markets worldwide, with the stock prices of many firms seeing unprecedented fall
We argue that sectors with higher levels of digital transformation remain resilient to the impact of the market sentiment from the COVID-19 pandemic, while sectors that lag across most digital transformation dimensions are among the most negatively affected
The divisive method starts from a single big cluster that contains all objects and splits the cluster iteratively until each object belongs to an individual cluster
Summary
The onslaught of the 2019 novel coronavirus disease (COVID-19) pandemic has impacted stock markets worldwide, with the stock prices of many firms seeing unprecedented fall. Many governments around the world imposed a shutdown on their cities in attempts to implement social distancing practices and slow down the spread of the life-threatening virus. Such shutdowns have brought what is classified as non-essential corporeal economic activities close to complete standstill. This has resulted in wellknown brands, such as Hertz, JC Penny, and J Crew, filing for bankruptcy, and. Amidst the bleak economic outlook, certain sectors appeared to have performed better. This paper aims to investigate the sectors that have performed better even as market sentiment is affected by the unfolding of the pandemic
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