Home / stock market performance 2022 graph / IMPACT OF COVID-19 ON STOCK MARKET …

IMPACT OF COVID-19 ON STOCK MARKET … - stock market performance 2022 graph

IMPACT OF COVID-19 ON STOCK MARKET …-stock market performance 2022 graph

International Journal of Social Science and Economic Research
ISSN: 2455-8834
Volume:07, Issue:08 "August 2022"
Uyen Thuy Mai Vu1,2
1School of Business, International University, Vietnam
2Vietnam National University, Ho Chi Minh City, Vietnam
DOI: 10.46609/IJSSER.2022.v07i08.008 URL: https://doi.org/10.46609/IJSSER.2022.v07i08.008
Received: 30 July 2022 / Accepted: 10 August 2022 / Published: 30 August 2022
The purpose of this paper is to capture the investors' mood related to the COVID-19 pandemic
and analyze its impact on the stock market returns of Vietnam.In order to capture the investor
mood related to the COVID-19 pandemic, the authors construct a unique COVID-19 fear index
based on the Search Volume Index (SVI) from Google Trends (http://www.Google.com/trends/)
of the search terms related to COVID-19 words and phrases as revealed by Google and Internet
dictionaries in Vietnamese. The COVID-19 fear index was used to investigate its impact on the
stock market returns. The study finds a strong negative association between COVID-19 fear and
stock returns in Vietnam. Unlike other studies, the relationship is persistent for a significant
period. This relationship is not found to reverse in the following days. The results also highlight
that COVID-19 fear strongly impacts the stock market. The sentiment persists for a significant
period and is not reversed soon, unlike the regular times in earlier studies.
Keywords: Economic policy uncertainty, behavioral finance, COVID fear index
1. Introduction
During the era of COVID-19, the Vietnamese stock has performed abnormal movements.
Specifically, when COVID-19 first arrived in Vietnam, the market plummeted and lost more
than 30 percent; it took many months to recover. In July of 2020, the second wave of COVID-19
arose in Vietnam, accompanied by a notable event - the Da Nang lockdown, VN-Index was also
dropped. In January 2021, being consistent with the third wave of COVID-19 in Vietnam, the
market sharply dropped once again. In July 2021, due to a fourth wave of COVID with a
traumatic nationwide lockdown, the VN-Index decreased dramatically. Such repeated market
www.ijsser.org Copyright ? IJSSER 2022, All rights reserved Page 2456
International Journal of Social Science and Economic Research
ISSN: 2455-8834
Volume:07, Issue:08 "August 2022"
behaviors share a common link which is whenever the COVID-19 experienced a sudden spike,
the market suffered a dramatic dip. In this regard, previous research has investigated the impact
of COVID- 19 on the return of the stock market, and some of the conclusions drawn from those
studies have been supported by empirical evidences such as Sowmya and Madhumita, 2021;
Baker et al., 2020; Al- Awadhi et al., 2020; Phan and Narayan, 2020; Ashraf, 2020; Kartal et al.,
2020; Zhang et al., 2020a; Sharif et al., 2020. Inspired by these former studies and the practical
observations, this study iis conducted to examine the impact of COVID-19 fear on the
Vietnamese stock market, as measured by VN-Index performance during the period of 2022 to
2. Literature review
The impact of psychological fear on the asset price which is correlated with the stock return has
been observed and studied in several recent research. Rick and Lowenstein (2008) suggested that
human emotions can influence their decision making. The study of Sapolsky (1996) also showed
that extreme and prolonged stress can affect cognitive skills. These arguments of impact of
behavioral factors such as fear on the stock market return are not recognized in the efficient
market theory. In the efficient market theory, the factors related to human emotions or mood are
not supposed to have any additional influence on the stock market return after controlling
fundamental variables. Only the fundamentals will alter pricing, thanks to arbitrage operations.
Since some limitations of arbitrage, behavioral biases still can have a significant impact on asset
price. Mispricing can be continued because the informed investors are unable to drive the prices
toward fundamentals (Shleifer and Vishny (1997), Gromb and Vayanos (2002), Brunnermeier
and Pedersen (2009)).
In this research we try to determine any relationship between COVID fear and stock market
return in Vietnam. Based on psychological literature, we assume that when people are in an
anxiety situation, their sense of uncertainty can be risen (Smith and Ellsworth, 1985; Ortony et
al., 1988). Zhang et al. (2020) discovered that more pandemic uncertainty relates to higher
market volatility and is unpredictable. The fear of uncertainty in the economic troubles can limit
investors in investment or encourage them to panic selling. The purpose of the study is to
identify the relationship between psychological fear related to COVID-19 and the stock market
return even after controlling for fundamental factors that influence the economy and market.
Ortmann et al. (2020) examined retail investor behavior during the COVID-19 period using
transactional level brokerage data. During COVID-19, investors lowered their use of leverage
and boosted their weekly trading intensity, according to their research. Haroon and Rizvi (2020)
www.ijsser.org Copyright ? IJSSER 2022, All rights reserved Page 2457
International Journal of Social Science and Economic Research
ISSN: 2455-8834
Volume:07, Issue:08 "August 2022"
explored the influence of stock market volatility on sentiment assessed from COVID-19-related
news. They discovered that panic-inducing news is linked to higher volatility in the stock market.
In recent research, Salisu and Akanni (2020) created a global fear index by using the reported
infection cases and the death index. They discovered that in OECD nations, the fear index is an
excellent predictor of stock returns. By employing the Google search volume index to measure
the fear index, we expand the work of Salisu and Akanni (2020) based on the database which is
collected in Vietnam. The usage ofGoogle search volume index to create a fear index is useful
for measuring investors' attention and fear produced by the COVID-19 pandemic.
3. Methodology
The time frame we chose to collect data is from March 8th, 2020 to February 27th, 2022. In this
paper, weekly time series data is applied. Overall, there are four main variables: market return
(dependent variable), COVID fear index, Global Economy Policy Uncertainty (GEPU), and New
COVID-19 cases, with the last two being the control variables for the regression function where
we test the null hypothesis that COVID fear index has a negative impact on the stock market
return. For this study, the market return is the weekly VN-Index percentage change.
3.1 Constructing the COVID fear index
The first step is to construct the COVID fear index. We came up with a list of 34 COVID-related
words and phrases in Vietnamese as in the table 1 below.
Table 1. 34 COVID--related words and phrases in Vietnamese
34 COVID-related terms
1 COVID-19 18 lam viec tai nha
2 khautrang 19 so ca tuvongCOVID
3 dich benh 20 nuoc sat khuan
4 viemphoi cap 21 cachly tap trung
5 phong toa 22 cachly tai nha
6 kit test 23 quy tac 5K
7 cachly 24 chi thi 16
8 hoi chunghauCOVID 25 khunghoang
9 COVID 26 pha san COVID
10 so ca nhiemCOVID 27 suythoai
11 trieuchungCOVID 28 that nghiep
12 giancachxa hoi 29 bung phat
www.ijsser.org Copyright ? IJSSER 2022, All rights reserved Page 2458