Is It a Real COVID-19 Fear? A Cross-Industry Study of Fear on the Stock Market

Abstract

Theoretical background: According to many behavioural studies, emotions (e.g. fear, greed, overenthusiasm) strongly influence investment decisions and are one of the main sources of irrational behaviour. Purpose of the article: The study aims at investigating the impact of fear related to the COVID-19 crisis on sector indices on the stock market, in the face of anticipatory restrictions imposed by the authorities. The paper illustrates the investors’ decisions affected by fear. Research methods: The empirical study includes statistical analyses, in particular an analysis of the coefficient of variation. Main findings: The highest increase in the implied volatility index, which is used as a proxy of fear, is noted for the period of uncertainty (before the decisive reactions of government), during which, investors’ reactions are the most strongly related to fear and the negative sentiment affects all the sectors.

Keywords

• covid-19
• capital market
• negative sentiment
• implied volatility