COVID-Induced Investor Sentiments and Market Reaction under Extreme Meteorological Conditions: Evidence from Clean Energy Sector of Asia-Pacific

Abstract

The unprecedented global economic and social crisis caused by the coronavirus outbreak has not spared the energy sector. Using a dynamic model, we investigated the effect of COVID-19 cases on investor sentiments and stock returns of clean energy in the Asian-Pacific region. The results show that coronavirus cases negatively affect stock returns using investor sentiments as a transmission channel. We also find a negative effect of air pollution on stock returns. Since COVID-19 restricted trade and plummeted the oil prices, economies relied on non-renewable sources to meet energy demands. Nevertheless, the investor’s optimism and high sentiment level may deteriorate this link. On the other hand, we do not find any significant effect of low-high temperature on either investor sentiments or clean energy stock returns. Clean energy stocks were viewed as more sustainable and less vulnerable to external shocks, however, the fear and pessimism among investors induced by corona-virus are spilled over the renewable energy sector.

The asymmetric effect of temperature, exchange rate, metals, and investor sentiments on solar stock price performance in China: evidence from QARDL approach

“…Thus, it is suggested that likewise US VIX (Sarwar 2012;Dutta 2019), the Chinese VIX is also an investor fear gauge in the Chinese solar energy market. In the short run, enough evidence is available to support the significant effect of investor sentiments on stock returns (Li et al 2017;Yahya et al 2021). Our long-run findings are consistent with You et al (2017) who estimated investor sentiments (measured by Twitter's daily happiness) and stock returns' predictability using quantile regression.…”

“…during the Covid-19 pandemic (Yahya et al 2021). Compared to metals and exchange rates, solar stocks are more volatile.…”

“…Especially during the COVID-19 pandemic, fear-and pessimism-induced investor sentiments were one of the major reasons that plummeted clean energy stock returns (Yahya et al 2021). Recent studies on the Chinese volatility index (iVX) show its predictive power to reflect investor sentiments (Xu and Zhou 2018;Long et al 2021b).…”

“…Previously, the temperature is considered a behavioral anomaly leading to the change in investors' moods. Extreme temperatures (low or high) distort the optimal risk-taking propensity of investors (Cao and Wei 2005;Shahzad 2019;Yahya et al 2021). Nevertheless, we presume that temperature may have a more direct relationship with solar stock prices as the sales may decrease during extreme weather.…”

The Asymmetric Effect of CEO Power on Energy Firms’ Strategic Decisions

“…Our control variables include board size (natural logarithm of total board members), financial leverage (debt to equity ratio), firm age (natural logarithm of firm age in years), firm size (natural logarithm of total assets) and COVID19 (dummy variable, i.e., 1 = year 2020, 0 = otherwise). It is essential to control for the effect of COVID-19 as the Pakistani stock market and industry were trapped by fear, uncertainty, and economic inactivity (Yahya, Shaohua, et al, 2021).…”