Do Investors Learn to Be Optimistic from SARS Experiences? Stock Market Reactions during COVID-19 in OECD Countries

Abstract

Various explanations have been proposed for the departure of the stock market prices from the economic realities during the COVID-19 outbreak. This paper conjectures that the SARS experiences can also have contributions to the quick recovery in stock markets. We first use an asset-pricing model to show that the stock price is affected by short-term fundamentals and the expectations about stock market. Then, we use two terms to describe "fear of missing out effect" and "resemblance effect" from the SARS experiences. Our results confirm that SARS experiences have positive contributions to the quick recovery of stock markets during the first wave of COVID-19. Both the FOMO effect and resemblance effect are positively related to stock market recovery. These positive contributions are reinforced if a country has actual experiences in treating SARS patients. We also find that the resemblance effects on stock market recovery are higher than the FOMO effects.

Keywords: COVID-19; asset pricing; expectations; SARS experiences, fear of missing out

JEL Classification: G4