【Abstract】

In this paper, we study how China’s stock market reacts to the sudden outbreak of COVID-19 in 2020, particularly to the announcement of the pandemic lockdown. In general, we observe reversals both at the industry level and at the firm level due to investors’ overreactions to the pandemic lockdown. For industry- and firm-level stocks with positive cumulative abnormal returns (CARs) in the event window when Wuhan was locked down, the reversals are stronger. Thus, the reversal effects are mostly driven by industries and stocks that positively overreact to COVID-19 than do others. Further investigation shows that overreactions are stronger for stocks with lower institutional ownership, which means that retail investors react more strong ly to COVID-19. Among stocks with positive CARsin the event window, those with higher idiosyncratic volatilities and lower book-to-market ratios tend to have worse performance after one month.

【Keywords】

COVID-19; pandemic lockdown; China’sstock market; overreaction

【Authors】

Zhigang Qiu, Research Fellow of IMI, Hanqing Advanced Institute of Economics and Finance and the Institute of Financial Innovation (IFI), Renmin University of China, Beijing, China Xiaolin Huo, Hanqing Advanced Institute of Economics and Finance and the Institute of Financial Innovation (IFI), Renmin University of China, Beijing, China