Starts and refutations of the Covid-19 rumors: Evidence from the reaction of the stock market |
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Affiliation: | 1. School of Accountancy, Central University of Finance and Economics, Beijing, PR China;2. Henan Audit Division, Bank of China, Zhengzhou, PR China |
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Abstract: | By manually collecting data on Internet-based rumors concerning COVID-19, we investigate the market reactions to the spread of such rumors and the government’s refutation of them. We find that frightening (reassuring) rumors have a negative (positive) impact on investors. The refutation of frightening rumors triggers a positive market response, whereas the refutation of reassuring rumors does not cause a significant market reaction. Further analysis shows that there is a stock price drift when frightening rumors are refuted by governments. Our conclusions remain robust after considering endogeneity. Our findings support the notion that epidemic-related rumors affect investors’ decisions, which add to literatures of the market responses of companies in the context of the COVID-19 pandemic and provide incremental evidence for the “the spiral of silence” theory. |
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Keywords: | COVID-19 rumors Market reaction Stock price drift Rumors refutation G12 G14 M41 |
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