Investor Attention and the Response of US Stock Sectors to the COVID-19 Crisis

Abstract

COVID-19 has had an immense impact on global stock markets, with no sector escaping its effects. Investor attention toward COVID-19 surged as the virus spread and its consequences imposed on everyday life. Using Google search volume (GSV) as a proxy for investor attention, our results show that heightened attention towards COVID-19 negatively influences US stock returns. However, relatively speaking, some sectors appear to have gained from the increased attention. This outperformance is centred in the sectors most likely to benefit (or likely to lose least) from the crisis and associated spending by households and government (i.e. Consumer Staples, Healthcare, and I.T.). Such results may be explained by an information discovery hypothesis in the sense that investors are searching online for information to enable a greater understanding of COVID-19’s impact on stock performance. While we do not claim that investor attention is the only driver of stock returns during the crisis, we do provide evidence that it contributes to the market impact and to the heterogeneity of returns across stock market sectors.

Keywords: Investor Attention, Stock Market Returns, Google Search Volume, COVID-19, Coronavirus

JEL Classification: G01, G10, G14