Abstract
This study analyzes the conflicting effects of investors' sentiment caused by public health emergencies and uses event analysis methods and linear regressions to examine the impact of such emergencies on the stock prices of insurance companies. The study shows that public health emergencies have a positive and significant impact on insurance companies' portfolios through investors' sentiment, which is persistent. However, the investor fear index triggered by public health emergencies is negatively associated with insurance stock portfolio returns. Meanwhile, insurers with smaller market capitalization are more strongly influenced by investors' sentiment than those with larger market capitalization.
Highlights
It is well documented that the pricing of certain assets is affected by people’s emotions, which, in turn, are influenced by certain events, such as sunlight, moon phases, sporting events, and major aviation disasters
Public health emergencies spread fear and have a negative impact on public sentiment, the insurance companies take advantage of such public health outbreaks to promote and increase the sale of various insurance programs or insurance portfolio programs by marketing them as means to protect and fight against the deadly infectious diseases. This increase in publicity leads to irrational expectations on the part of investors, who start thinking that such policies will increase the cash flows of insurance companies, thereby giving a boost to their stock prices
Based on the theory of behavioral finance, numerous studies have shown that the occurrence of specific events, such as war, disease, terrorism, and international sports competitions, inevitably has a significant impact on investors’ sentiment
Summary
It is well documented that the pricing of certain assets is affected by people’s emotions, which, in turn, are influenced by certain events, such as sunlight, moon phases, sporting events, and major aviation disasters. Public health emergencies spread fear and have a negative impact on public sentiment, the insurance companies take advantage of such public health outbreaks to promote and increase the sale of various insurance programs or insurance portfolio programs by marketing them as means to protect and fight against the deadly infectious diseases This increase in publicity leads to irrational expectations on the part of investors, who start thinking that such policies will increase the cash flows of insurance companies, thereby giving a boost to their stock prices. After the outbreak of public health emergencies, the public pays extra attention to insurance products related to such diseases because of the panic psychology and risk aversion, which tends to increase the sales of insurance companies and the investment in the R&D cost of the corresponding products to a certain extent, making some investors feel optimistic about investing in such companies Another hypothesis in this study is that some investors have a persistent positive sentiment toward the stock returns of insurance companies. Two common empirical research methods, namely event analysis and multiple linear regression, are used to examine the impact of investors’ sentiment generated by DRNs on the stock prices of insurance companies
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