Effect of coronavirus fear on the performance of Australian stock returns: evidence from an event study

Dharmendra Naidu, Kumari Ranjeeni

Research output: Contribution to journalArticleResearchpeer-review

Abstract

Using an event study methodology and a sample of 478 firms listed on the Australian Securities Exchange, we find the following results. First, coronavirus fear significantly and adversely affected the returns of many sectors, small-, medium- and large-sized stocks. Second, coronavirus fear was a source of return drift in the Australian stock market. Our results suggest that investors underreacted to coronavirus fear, and this underreaction was prevalent across a range of sectors and firm size categories. We also find that had investors adopted a short selling strategy for stocks that suffered significant negative effects from the coronavirus fear and post-event return drift, they would have gained profits ranging from 2.14% to 13.81%. Robustness tests based on longer event windows confirm the main results. Additionally, we find evidence of reversals in stock returns mostly following the first stimulus payment in Australia. However, large firms and the information technology sector were the first to experience a reversal in returns a few days following the announcement of the second stimulus package and the commencement of lockdown but before the first stimulus payment was made.

Original languageEnglish
Article number101520
Number of pages15
JournalPacific Basin Finance Journal
Volume66
DOIs
Publication statusPublished - Apr 2021

Keywords

  • COVID-19
  • Stock returns
  • Event study
  • Australia
  • Underreaction
  • Trading strategy

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