COVID-19 Pandemic and Stock Market Response: A Culture Effect

56 Pages Posted: 8 Jun 2020 Last revised: 18 Dec 2020

See all articles by Adrian Fernandez-Perez

Adrian Fernandez-Perez

Auckland University of Technology

Aaron B. Gilbert

Auckland University of Technology - Faculty of Business & Law

Ivan Indriawan

Auckland University of Technology - Department of Finance

Nhut H. Nguyen

Auckland University of Technology

Date Written: June 5, 2020

Abstract

National culture has been shown to impact the way investors, firm managers, and markets in their entirety respond to different situations and events. The psychology literature, however, notes that in terms of crisis, old behaviors and norms can get replaced by new norms as groups adjust to the new situation. To date, no one has looked at the impact of culture on market responses to disasters. This paper is the first to address the effect of national culture on stock market responses to a global health disaster. We find larger declines and greater volatilities for stock markets in countries with higher uncertainty avoidance, lower individualism, and greater experience with disease-causing pathogens during the first three weeks after the confirmation of the first COVID-19 case within a country. Our results are robust after controlling for a number of variables, including investor fear, cumulative infected cases, the stringency of government response policies, the 2003 SARS experience, the level of democracy, political corruption, and trade openness.

Keywords: Coronavirus, COVID-19, Pandemic, Culture, Disaster, Abnormal Return, Volatility

JEL Classification: G12, G15, G41

Suggested Citation

Fernandez-Perez, Adrian and Gilbert, Aaron B. and Indriawan, Ivan and Nguyen, Nhut H., COVID-19 Pandemic and Stock Market Response: A Culture Effect (June 5, 2020). Available at SSRN: https://ssrn.com/abstract=3620524 or http://dx.doi.org/10.2139/ssrn.3620524

Adrian Fernandez-Perez

Auckland University of Technology ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand
+64 9 921 9999 (Phone)
+64 9 921 9940 (Fax)

Aaron B. Gilbert

Auckland University of Technology - Faculty of Business & Law ( email )

3 Wakefield Street
Private Bag 92006
Auckland Central 1020
New Zealand

Ivan Indriawan

Auckland University of Technology - Department of Finance ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand

Nhut H. Nguyen (Contact Author)

Auckland University of Technology ( email )

55 Wellesley St East
Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

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