Financial recommendations on Reddit, stock returns and cumulative prospect theory

This study investigates stock recommendations from the three largest finance subreddits on Reddit: wallstreetbets, investing and stocks. A simple strategy that buys recommended stocks weighted by the number of posts per day yields a portfolio with higher average returns at the expense of higher risks than the market for all holding periods, i.e., unfavorable Sharpe ratios. Furthermore, the strategy leads to positive (insignificant) short-term and negative (significant) long-term alphas when considering common risk factors. This is consistent with the idea of "meme stocks", meaning that the recommended stocks are artificially inflated in the short term when they are recommended, and that the posts contain no information about long-term success. However, it is likely that Reddit users, especially on the subreddit wallstreetbets, have preferences for bets which are not captured by the mean-variance framework. Therefore, we draw on cumulative prospect theory (CPT). We find that the CPT-valuations of the Reddit portfolio exceed those of the market, which may explain the persistent attractiveness for investors to follow social media stock recommendations despite the unfavorable risk-return ratio.

Is air pollution politics or economics? Evidence from industrial heterogeneity

This paper checks the asymmetrical impact of Beijing's and Shanghai's air quality (AQ) on cross-industries stock returns (SR) by using the quantile-on-quantile (QQ) regression method. The major empirical findings as shown as followings. There are heterogeneous responses from SR to AQ within the same city. Different links are discovered for Beijing and Shanghai within the same industry. Air pollution does not have political or economic properties for all industries. Our research provides useful contributions compared with past literature. First of all, we distinguish whether air pollution is political or economic. Apart from psychology and physiology, government intervention and economic expectation are also important components in interpreting the influence from AQ to SR. Second, this study adequately considers the heterogeneity of industries. Industries differently react to the identical extrinsic shock, depending on the nature of their industry. Besides, the QQ approach captures quantile-varying relationship between variables, and does not need to consider structural fracture and time lag effects. The practical significance is that investors need to focus on national industrial policies, and avoiding biased decisions in stock market from air pollution.

COVID-19 impact on digital companies' stock return: A dynamic data analysis

The coronavirus crisis impact on the digital sector is undoubtedly an important issue that deserves to be studied. Researchers mostly focused on specific sectors such as tourism, healthcare sector, or the economy. This paper used a dynamic panel model to examine the COVID-19 crisis impact on the digital companiesfl stock return. The findings indicate that both of the monthly growth in total infected cases and total death cases caused by COVID-19 have significant positive effects on stock returns across digital companies. This novel results contradicts previous research findings and highlights that this crisis is slowing down all the economic sectors.

Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses

This paper examines the impact of bank-specific factors and variations in the context of stringency of government policy responses on bank stock returns because of the COVID-19 pandemic. A sample of 1,927 publicly listed banks from 110 countries is used for the period of the first major wave of COVID-19, that is, January to May 2020. Our findings indicate that stock returns of banks with higher capitalization and deposits, more diversification, lower non-performing loans, and larger size are more resilient to the pandemic. While banks' environment and governance scores do not have a significant impact, higher social and corporate social responsibility strategy scores intensify the negative stock price reaction to COVID-19. We further observe that the pandemic-induced reduction in bank stock prices is mitigated as the strictness of government policy responses increases, mainly through economic responses such as income support, debt and contract relief, and fiscal measures from governments.

COVID-19 and stock exchange return variation: empirical evidences from econometric estimation

This research looked at the effects of COVID-19 on a number of the world's most important stock exchanges, as well as the empirical relation between the COVID-19 wave and stock market volatility. In order to plan proper portfolio diversification in international financial markets, researchers must examine COVID-19 anxiety in relation to stock market volatility. The stock market volatility connected with the COVID-19 pandemic was measured using AR(1)-GARCH(1,1). COVID-19 fear, according to our research, is the ultimate driver of public attention and stock market volatility. The findings show that throughout the pandemic, stock market performance and GDP growth both declined significantly due to average increases. Furthermore, a 1% increase in COVID-19 causes a 0.8% and 0.56% decline in stock return and GDP, respectively. The stock market, on the other hand, showed a slight movement in GDP growth. Furthermore, the COVID-19 pandemic reported cases index, death index, and global panic index all influenced public perceptions of purchasing and selling. As a result, rather than investing in stocks, it is recommended that you invest in gold. The research also makes policy recommendations for important stakeholders. We look to examine how stock returns respond dynamically to unanticipated changes in the COVID-19 scenarios, as well as the uncertainty that comes with a pandemic. Using daily data from Canada and the USA, we conclude that a spike in COVID-19 instances has a negative impact on the stock market in general. Furthermore, in both the increase and decline scenarios in Canada, the stock return reactions are asymmetric. The disparity is due to the unfavorable impact of the pandemic's unpredictability. We also discovered that uncertainty had a negative impact on the US stock market. The magnitude, however, is insignificant.

Do stock markets love misery? Evidence from the COVID-19

This study examines the impact of the change in the Barro Misery Index (BMI) and the novel coronavirus (COVID-19) cases and deaths on the stock markets' returns and volatility. Based on a sample of 76 different countries, we find that an increase in BMI adversely affects the stock returns and increases stock volatility. We also find that an increase in BMI coupled with an increase in percentage cases of COVID-19 adversely affect stock returns and increases volatility. We find that the impacts of BMI on stock returns and volatility are driven by real GDP changes, unemployment rate, and long-term interest rate instead of inflation rates, especially for the developed countries. Our findings are consistent with Barro (1999), which indicates that the BMI represents a better measure relative to the original misery index in predicting the economic outcome, especially during the COVID-19 pandemic. We also find that the impacts of BMI components on stock returns and volatility for the developed countries are different from the emerging markets.

Does sustainability activities performance matter during financial crises? Investigating the case of COVID-19

As a market for sustainability investing is growing rapidly, understanding the impact of environmental, social, and governance (ESG) activities on firms' financial performance is becoming increasingly important. In this study, we examine the effect of ESG performance on stock returns and volatility during the financial crisis resulting from the coronavirus (COVID-19) pandemic. To quantify the impact, we use company-level daily ESG score data and United Nations Global Compact (GC) score data. In our dataset, ESG scores indicate ESG performance that is deemed important to financial materiality, and the GC score indicates the firm reputation for following UN rules. Our results indicate that during the pandemic, an increase in the ESG score, especially the E score component, is related to higher returns and lower volatility. Conversely, increasing GC scores is correlated with lower stock returns and higher volatility. In addition, we find that firms in lower return groups benefit more than other firms. Focusing on energy sector impacts, we show that although the non-energy sector benefits more than the energy sector from increasing E scores, energy sector firms can still reduce their stock price volatility by increasing these scores. Our study offers significant implications for ESG investment strategies during financial crises.

How do equity markets react to COVID-19? Evidence from emerging and developed countries

Based on the supply of stock market returns hypothesis, we argue that the unprecedented adverse shock of COVID-19 on the countries' economic growth translates into a negative shock to the stock markets. According to the institutional theory, we also argue that the impact of COVID-19 in emerging countries is different from developed countries. Based on the overreaction hypothesis, we expect that the market reaction during the stabilizing period of COVID-19 spread is different from the market reaction during the infection period. Using high-frequency daily data across 53 emerging and 23 developed countries from January 14 to August 20, 2020, we find that COVID-19 cases and deaths adversely affect stock returns and increase volatility and trading volume. Cases and deaths affected stock returns and volatility in the emerging markets, while only cases of COVID-19 affected stock returns, volatility, and trading volume in the developed markets. COVID-19 cases and deaths are related to returns, volatility, and trading volume for emerging countries during the rising infection of COVID-19 (pre-April 2020), while cases and mortality rates are related to returns, volatility, and trading volume in developed countries during the stabilizing spread (post-April 2020). Therefore, the emerging markets' investors seem to react to COVID-19 cases and mortality rates differently from those in the developed markets across two different periods of COVID-19 infection.

Stock return predictability in the time of COVID-19

We examine predictive ability of a relatively large number of variables from currency, bond and commodity markets for US stock returns during the COVID-19 crisis. As a novel contribution, we estimate robust Lasso predictive regressions with Cauchy errors, consistent with extreme movements and nonlinearities in the market. Both investment grade and high yield corporate bonds emerge as significant predictors of US stock returns in the period, lending support to recent policy decisions by the Federal Reserve.

Stock Return and the COVID-19 pandemic: Evidence from Canada and the US

We investigate the dynamic responses of stock return to the unexpected changes in the COVID-19 cases and the uncertainty associated with the pandemic. Using daily data from Canada and the US, we find there is a negative effect of an increase in the COVID-19 cases on the stock market in general. Moreover, the stock return responses are asymmetric in the increase and decrease in the cases in Canada. The asymmetry is caused by the negative impact of uncertainty about the pandemic. We also find that uncertainty adversely affects the US stock market. However, the magnitude is small.

An analysis of the stock market reaction to the announcements of the UK Soft Drinks Industry Levy

On 16^th March 2016, the government of the United Kingdom announced the Soft Drinks Industry Levy (SDIL), under which UK soft-drink manufacturers were to be taxed according to the volume of products with added sugar they produced or imported. We use 'event study' methodology to assess the likely financial effect of the SDIL on parts of the soft drinks industry, using stock returns of four UK-operating soft-drink firms listed on the London Stock Exchange. We found that three of the four firms experienced negative abnormal stock returns on the day of announcement. A cross-sectional analysis revealed that the cumulative abnormal returns of soft drink stocks were not significantly less than that of other food and drinks-related stocks beyond the day of the SDIL announcement. Our findings suggest that the SDIL announcement was initially perceived as detrimental news by the market but negative stock returns were short-lived, indicating a lack of major concerns for industry. There was limited evidence of a negative stock market reaction to the two subsequent announcements: release of draft legislation on 5^th December 2016, and confirmation of the tax rates on 8^th March 2017.