COVID-19 related uncertainty, investor sentiment and stock returns in India

R, Sreelakshmi and Sinha, Apra and Mandal, Sabuj Kumar (2021): COVID-19 related uncertainty, investor sentiment and stock returns in India.

Abstract

Akin to the global markets, the Indian stock market also nosedived in response to the COVID-19 pandemic. However, this drastic fall was not persistent; rather a sharp recovery was witnessed as a result of sweeping investor enthusiasm and wide-ranging speculation. In this paper, we explore the relationship between investor sentiment, stock returns and important macro variables during the COVID-19 period spanning from January, 2020 to May, 2021. We have also conducted event analysis to see the significance of major events during the period. While the Great Lockdown and first fiscal package impacted the stock returns significantly, the first case reported, second fiscal package, vaccination drive and the second wave failed to create a commendable impact. The event analysis also suggests that the Indian stock market responds negatively to an increase in interest rate uncertainty. Our empirical analysis shows evidence of significant effect of investor sentiment on stock returns during all periods, except the period of extreme volatility. Moreover, the stock return is positively related to oil price and negatively related to the exchange rate. We also find mixed evidence of COVID-19 related information on stock market.

• Item Type: MPRA Paper
• Language: English
• Keywords: COVID-19 pandemic, uncertainty, investor sentiment, stock returns, event analysis, India
• Subjects: G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G0 - General > G02 - Behavioral Finance: Underlying Principles; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

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