MARKET RETURNS UNDER VOLATILITY, LIQUIDITY, INFORMATION ASYMMETRY, DISPOSITION EFFECT DURING COVID

Abstract

Covid-19 has affected financial and stock markets globally. It is one of the biggest natural disasters in known history. It has impacted stock markets adversely. This paper examines the moderating effect of volatility, liquidity, information asymmetry, and disposition effect on stock returns in wake of covid-19 pandemic. Moderated OLS regression technique is used to run the analysis in STATA. The results suggest that covid-19 total reported cases impact returns significantly while volatility and information asymmetry also have a significant effect on returns and strengthen the impact of covid-19 on returns. The disposition effect impacts return negatively and significantly and strengthens the impact of covid-19 total cases on returns while covid-19 total deaths do not have any significant impact on returns and no moderation is proved as such. This study gives insight to managers and investors in emerging markets to consider major shifts in the market during unpredictable events like covid-19. On the academic level, this study provides a stepping-stone for understanding markets better during black swan events (Like covid). The findings are largely in line with the earlier literature on natural disasters.

Keywords: Liquidity, Volatility, Disposition Effect, Returns, Information Asymmetry, Covid-19