The effect of attention to the Covid-19 pandemic on asset returns and sentiment of individual investors
Keywords:
Investor Attention; Covid-19; Return on Shares; Investor Sentiment.
Abstract
Objective: To assess the impact of attention to the covid-19 pandemic on asset returns and the sentiment of individual investors.
Method: The Search Volume Index was employed as a proxy for investor attention, and for the construction of a robust attention level. To measure returns, both simple and abnormal returns were utilized, while the Hedonometer Happiness Index gauged investor sentiment. Data were analyzed using quantile regressions.
Originality/Relevance: There is a scarcity of research examining investor attention in developing markets (with minimal research in Brazil) and especially utilizing more direct attention metrics. Literary gaps are identified regarding the effect of limited attention on the stock market and particularly its relationship with investor sentiment. This study becomes relevant by delving into these areas.
Results: Attention to the covid-19 pandemic had a negative impact on investor sentiment, as did the increase in the number of searches, which had a negative effect on stock returns. Findings are justifiable due to the necessity of allocating attention, related to investors' limited attention, coupled with the heightened risks and uncertainty in financial markets in response to the pandemic or preventive measures such as lockdowns.
Theoretical/Methodological/Practical Contributions: The conclusions are valuable for policymakers, stock exchanges, and investors, as they comprehend how the extent of internet research (attention allocation) influences stock returns in the context of emerging markets, where markets primarily depend on publicly and non-publicly available information, and how investor sentiment is also affected by attention. It also contributes to literary gaps regarding limited attention and its psychological and economic consequences.
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References
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Ashraf, B. N. (2020). Economic impact of government interventions during the COVID-19 pandemic: International evidence from financial markets. Journal of behavioral and experimental finance, 27, 100371.
Barber, B. M., & Odean, T. (2008). All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. The review of financial studies, 21(2), 785-818.
Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross‐section of stock returns. The journal of Finance, 61(4), 1645-1680.
Baker, S. R., Farrokhnia, R. A., Meyer, S., Pagel, M., & Yannelis, C. (2020). How does household spending respond to an epidemic? Consumption during the 2020 COVID-19 pandemic. The Review of Asset Pricing Studies, 10(4), 834-862.
Bijl, L., Kringhaug, G., Molnár, P., & Sandvik, E. (2016). Google searches and tock returns. International Review of Financial Analysis, 45, 150-156. https://doi.org/10.1016/j.irfa.2016.03.015
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Chundakkadan, R., & Nedumparambil, E. (2021). In search of COVID-19 and stock market behavior. Global Finance Journal, 54, 100639.
Costa, M. R., Mendes, A. C. A., Silva, M. S., & Lunkes, R. J. (2022). Os Fatores Determinantes Para a Entrada de Pequenos Investidores na Bolsa de Valores do Brasil. Revista de Contabilidade e Controladoria, 14(2), 144-165.
Costola, M., Iacopini, M., & Santagiustina, C. R. (2021). Google search volumes and the financial markets during the COVID-19 outbreak. Finance Research Letters, 42, 101884.
Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention. The Journal of Finance, 66(5), 1461-1499.
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Ding, R., & Hou, W. (2015). Retail investor attention and stock liquidity. Journal of International Financial Markets, Institutions and Money, 37, 12-26.
Elton, E., Gruber, M., & Brown, S. (2012). Moderna teoria de carteiras e análise de investimentos. Elsevier Brasil.
Erdem, O. (2020). Freinvestidores começam a exigir maior risco de mercadoedom and stock market performance during Covid-19 outbreak. Finance Research Letters, 36, 101671.
Fonseca, S. E. (2022). Fundos de investimento: market timing, sentimento do investidor e incerteza da política econômica. 170f. Tese (doutorado) - Universidade Federal de Minas Gerais, Centro de Pós-Graduação e Pesquisa em Administração, Belo Horizonte.
Galvão Jr, A. F. (2011). Quantile regression for dynamic panel data with fixed effects. Journal of Econometrics, 164(1), 142-157.
Gao, J., Li, H., & Lu, Z. (2023). Impact of COVID-19 on investor sentiment in China's stock markets. Heliyon, 9(10).
Groß-Klußmann, A., & Hautsch, N. (2011). When machines read the news: Using automated text analytics to quantify high frequency news-implied market reactions. Journal of Empirical Finance, 18(2), 321-340.
Hameed, A., Kang, W., & Viswanathan, S. (2010). Stock market declines and liquidity. The Journal of finance, 65(1), 257-293. https://doi.org/10.1111/j.1540-6261.2009.01529.x
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Han, L., Li, Z., & Yin, L. (2017). The effects of investor attention on commodity futures markets. Journal of Futures Markets, 37(10), 1031-1049.
Han, L., Wu, Y., & Yin, L. (2018). Investor attention and currency performance: international evidence. Applied Economics, 50(23), 2525-2551.
Haroon, O., & Rizvi, S. A. R. (2020). COVID-19: Media coverage and financial markets behavior—A sectoral inquiry. Journal of Behavioral and Experimental Finance, 27, 100343.
Huang, Y., & Zhang, H. (2020). Does individual investors’ attention influence underwriters’ IPO pricing? Applied Economics, 52(34), 3680-3687.
Huberman, G., & Regev, T. (2001). Contagious speculation and a cure for cancer: A nonevent that made stock prices soar. The Journal of Finance, 56(1), 387-396.
Jiang, B., Zhu, H., Zhang, J., Yan, C., & Shen, R. (2021). Investor sentiment and stock returns during the COVID-19 pandemic. Frontiers in Psychology, 12, 708537.
Kim, N., Lučivjanská, K., Molnár, P., & Villa, R. (2019). Google searches and stock market activity: Evidence from Norway. Finance Research Letters, 28, 208-220.
Koenker, R. (2004). Quantile regression for longitudinal data. Journal of Multivariate Analysis, 91(1), 74-89.
Krajbich, I. (2019). Accounting for attention in sequential sampling models of decision making. Current opinion in psychology, 29, 6-11.
Li, X., Shen, D., Xue, M., & Zhang, W. (2017). Daily happiness and stock returns: The case of Chinese company listed in the United States. Economic Modelling, 64, 496-501.
Lim, S. S., & Fteoh, S. H. (2010). Limited attention. Behavioral finance: Investors, corporations, and markets, 295-312.
Lyócsa, Š., Baumöhl, E., Výrost, T., & Molnár, P. (2020). Fear of the coronavirus and the stock markets. Finance research letters, 36, 101735.
Merton, R. C. (1987). A simple model of capital market equilibrium with incomplete information. Journal of Finance, 42, 483-510.
Mishra, A. K., Rath, B. N., & Dash, A. K. (2020). Does the Indian financial market nosedive because of the COVID-19 outbreak, in comparison to after demonetisation and the GST?. Emerging Markets Finance and Trade, 56(10), 2162-2180.
Mondria, J., Wu, T., & Zhang, Y. (2010). The determinants of international investment and attention allocation: Using internet search query data. Journal of International Economics, 82(1), 85-95.
Nguyen, C. P., Schinckus, C., & Hong Nguyen, T. V. (2019). Google search and stock returns in emerging markets. Borsa Istanbul Review, 19(4), 288-296. https://doi.org/10.1016/j.bir.2019.07.001
Nisar, T. M., & Yeung, M. (2018). Twitter as a tool for forecasting stock market movements: A short-window event study. The journal of finance and data science, 4(2), 101-119.
Nogueira Reis, P., & Pinho, C. (2020). COVID-19 and investor sentiment influence on the US and European countries sector returns. Investment Management and Financial Innovations, 17(3), 373-386.
Nunes, M. S., Costa Jr, N. C., & Meurer, R. (2005). A relação entre o mercado de ações e as variáveis macroeconômicas: uma análise econométrica para o Brasil. Revista Brasileira de Economia, 59, 585-607.
Oliveira, F. N. de, & Paula, E. L.de (2008). Determinando o grau ótimo de diversificação para investidores usuários de home brokers. Brazilian Review of Finance, 6(3), 439-463. https://doi.org/10.12660/rbfin.v6n3.2008.1347.
Oliveira, G. G (2021). Análise do desempenho de fundos de investimentos em ações brasileiras. 87f. Dissertação (Mestrado) - Universidade de São Paulo, Programa de Pós-Graduação em Engenharia de Produção, São Carlos.
Oliveira, L. P.; Silva, C. A. T (2021). Análise da relação entre Humor Expresso no Twitter, Retorno, Volatilidade e Volume de Negociações no Mercado Acionário Brasileiro. In: XVIII Congresso Internacional de Contabilidade e Auditoria (CICA), Lisboa. Resumos das comunicações do XVIII Congresso Internacional de Contabilidade e Auditoria Contabilidade no Século XXI - Novos Horizontes. Lisboa: Ordem dos Contabilistas Certificados, 2021, 1-164.
Ortmann, R., Pelster, M., & Wengerek, S. T. (2020). COVID-19 and investor behavior. Finance research letters, 37, 101717.
Panyagometh, K. (2020). The effects of pandemic event on the stock exchange of Thailand. Economies, 8(4), 90.
Perlin, M. S., Caldeira, J. F., Santos, A. A. P., & Pontuschka, M. (2017). Can we predict the financial markets based on google's search queries? Google search queries and financial markets. Journal of Forecasting, 36(4),454e467. https://doi.org/10.1002/for.2446
Pyo, D.-J. (2017). Can big data help predict financial market dynamics? Evidence from the Korean stock market. East Asian Economic Review, 21(2), 147-165. https://doi.org/10.11644/KIEP.EAER.2017.21.2.327
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Published
2026-01-02
How to Cite
Farias dos Santos, R., & Tibúrcio Silva, C. A. (2026). The effect of attention to the Covid-19 pandemic on asset returns and sentiment of individual investors. Enfoque: Reflexão Contábil, 45(1), 132-154. https://doi.org/10.4025/enfoque.v45i1.71114
Section
Original Articles
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