The Effect of COVID-19 Fear Sentiment on Banks’ Performance in Emerging Markets

Abstract

The current situation of the COVID-19 pandemic is poking fear of falling sick, dying, and stigma. Urgent and timely understanding of explaining bank performance with a pandemic sentiment is needed, especially, the literature presented little evidence of this issue.
 
 Hence, the researchers investigate the impact of the fear sentiment, measured by a Country Fear Index (CFI) on banks’ performance daily since the onset of the crisis. In addition, we demonstrate the impact of investor assessment, measured through the price-to-book value ratio, on the banks’ performance for 10 emerging markets, focusing on MENA and BRICS countries.
 
 We find that the stock performance of banks in emerging markets counties was significantly driven by investors’ irrational fear sentiment. The results reveal the impact significance of CFI on the performance of bank stocks, most notably on the risk side. Hence, results indicate that CFI can be used to predict bank stocks’ risk during crises.

Does media sentiment affect stock prices? Evidence from China’s STAR market

“…One is that irrational individual investor participation increased with institutional investor decreasing during the pandemic ( Tutuncu, 2022b ), but the trading behavior of individual investors became more emotional. The other is that the outbreak of the COVID-19 pandemic created great uncertainty in the stock market, which influenced investors’ psychological and behavioral factors ( Hoffmann et al, 2013 ; Nabil and Elalfy, 2022 ). Greater market uncertainty causes investors to search for more information ( Bonsall et al, 2020 ), which makes media sentiment more likely to influence individual investors and in turn affect stock prices on the secondary market.…”