Abstract
The effect of COVID-induced public anxiety on stock markets, particularly in European stock market returns, is examined in this research. The search volumes for the notion of COVID-19 gathered by Google Trends and Wikipedia were used as proxies for COVID-induced public anxiety. COVID-induced public anxiety was shown to be linked with negative returns in European stock markets when a panel data method was used to a sample of data from 14 European stock markets from January 2, 2020 to September 17, 2020. Using an automated trading system, we used this finding to suggest investment methods based on COVID-induced anxiety. The findings of back-testing indicate that these techniques have the potential to generate exceptional profits. These results have significant consequences for government officials, the media, and investors.
Highlights
The coronavirus disease (COVID-19) outbreak, which the WHO designated as a pandemic on March 11, 2020, has caused the most major shift in the world order since the previous century, creating economic problems on a scale not seen since the Great Depression of 1929 (Laing, 2020).Governments all around the globe were confronted with significant difficulties, including a profound economic downturn, rising unemployment, a dramatic decrease in international commerce, and rising budget deficits (Bai et al, 2021)
To the contribution, (1) we add to the literature on the impact of exogenous events and the ability of internet search volumes to measure the impact of public fear on financial markets; (2) we contribute to studies on the impact of COVID-19 on financial markets by using Google Trends and Wikipedia as indicators of COVID-induced public fear; (3) we show how COVID-induced public fear has a positive impact on financial markets
A sample of daily data was collected from January 2, 2020 to September 17, 2020 in order to examine the impact of public anxiety created by COVID-19 on the recovery of European stock markets
Summary
Governments all around the globe were confronted with significant difficulties, including a profound economic downturn, rising unemployment, a dramatic decrease in international commerce, and rising budget deficits (Bai et al, 2021). It did not take long for the COVID-19 effect to be felt in the stock market. The rising number of infections has prompted governments to take countermeasures, but it has resulted in a catastrophic drop in stock markets, with several worldwide markets seeing their worst collapses in history in February and March 2020 (Li et al, 2021). Investors may overreact or underreact as a result of this anxiety (Daniel et al, 1998; Hong et al, 2007)
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