Short term reactions on the Bucharest Stock Exchange before and during Coronavirus Pandemic
Keywords:
Romanian capital market; reaction to shocks; Coronavirus Pandemic
Abstract
The reactions of stock markets to shocks could have some particularities in circumstances when extraordinary events occur. This paper explores the reactions of the Romanian capital market in two complex periods. The first one, from July 2, 2018, to January 29, 2020, was marked by external and domestic circumstances that influenced investors’ behavior. During the second one, from January 30, 2020, to August 17, 2021, the financial markets were affected by Coronavirus Pandemic. The results suggest that in both periods the underreactions of shares prices predominated.
References
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19. Dann, L. Y., Mayers, D. and Raab Jr, R. J., 1977. Trading rules, large blocks and the speed of price adjustment. Journal of Financial Economics, 4(1), pp. 3-22.
20. David, A., 1997. Fluctuating confidence in stock markets: Implications for returns and volatility. Journal of Financial and Quantitative Analysis, 32(4), pp. 427-462.
21. De Bondt, W. F. and Thaler, R.,1985. Does the stock market overreact? The Journal of Finance, 40(3), pp. 793-805.
22. De Bondt, W. F. and Thaler, R. H.,1987. Further evidence on investor overreaction and stock market seasonality. The Journal of Finance, 42(3), pp. 557-581.
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26. Ederington, L. H. and Lee, J. H., 1993. How markets process information: News releases and volatility. The Journal of Finance, 48(4), pp. 1161-1191.
27. Fama, E. F., Fisher, L., Jensen, M. and Roll, R., 1969. The adjustment of stock prices to new information. International Economic Review, 10(1).
28. Fama, E. F.,1970. Efficient capital markets: a review of theory and empirical work, Journal of Finance, 25, pp. 383-417.
29. Fama, E. F., 1991. Efficient Capital Markets: II. The Journal of Finance, 46(5), pp. 1575-1617.
30. González Maiz Jiménez, J. and Ortiz Calisto, E., 2020. Testing the overreaction hypothesis in the mexican stock market. Contaduría y administración, 65(1).
31. Hong, H., Lim, T. and Stein, J. C., 2000. Bad news travels slowly: Size, analyst coverage, and the profitability of momentum strategies. The Journal of Finance, 55(1), pp. 265-295.
32. Hong, H. and Stein, J. C., 1999. A unified theory of underreaction, momentum trading, and overreaction in asset markets. The Journal of Finance, 54(6), pp. 2143-2184.
33. Howe, J. S.,1986. Evidence on stock market overreaction. Financial Analysts Journal, 42(4), pp. 74-77.
34. Jegadeesh, N. and Titman, S., 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of Finance, 48(1), pp. 65-91.
35. Jegadeesh, N. and Titman, S., 2001. Profitability of momentum strategies: An evaluation of alternative explanations. The Journal of Finance, 56(2), pp. 699-720.
36. Jennings, R. and Starks, L., 1985. Information content and the speed of stock price adjustment. Journal of Accounting Research, pp. 336-350.
37. Jiang, G. J. and Zhu, K. X., 2017. Information shocks and short-term market underreaction. Journal of Financial Economics, 124(1), pp. 43-64.
38. Lasfer, M. A., Melnik, A. and Thomas, D., 2003. Stock price reaction in stressful circumstances: An international comparison. Journal of Banking and Finance, 27(10), pp. 1959-1977.
39. Lo, A. W. and MacKinlay, A. C.,1988. Stock market prices do not follow random walks: Evidence from a simple specification test. The Review of Financial Studies, 1(1), pp. 41-66.
40. Maheshwari, S. and Dhankar, R., 2014. A critique of overreaction effect in the global stock markets over the past three decades. IOSR Journal of Business and Management, 16(4), pp. 25-32.
41. Maheshwari, S. and Dhankar, R. S., 2017. The Effect of Global Crises on Momentum Profitability: Evidence from the Indian Stock Market. Vision, 21(1), pp. 1-12.
42. Malkiel, B. G., 2003. The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), pp. 59-82.
43. Mazur, M., Dang, M. and Vega, M., 2021. COVID-19 and the march 2020 stock market crash. Evidence from S&P1500. Finance Research Letters, 38.
44. Michayluk, D. and Neuhauser, K. L., 2006. Investor overreaction during market declines: Evidence from the 1997 Asian financial crisis. Journal of Financial Research, 29(2), pp. 217-234.
45. Musnadi, S. and Majid, M. S. A., 2018. Overreaction and underreaction anomalies in the Indonesian stock market: A sectoral analysis. International Journal of Ethics and Systems, 34(4), pp. 442-457.
46. Mynhardt, R. H. and Plastun, A., 2013. The overreaction hypothesis: The case of Ukrainian stock market. Corporate Ownership and Control, 11(1 ), pp. 406-422.
47. Ozoguz, A., 2009. Good times or bad times? Investors' uncertainty and stock returns. The Review of Financial Studies, 22(11), pp. 4377-4422.
48. Pham, V. T. L. and Tô, T. D., 2007. Abnormal returns after large stock price changes: Evidence from Asia-Pacific markets. In Kim, S. -J. and Mckenzie M. D. (Eds.), Asia-Pacific financial markets: integration, innovation and challenges (International Finance Review, Vol. 8). Emerald Group Publishing Limited, Bingley, pp. 205-227.
49. Rouwenhorst, K. G., 1998. International momentum strategies. The Journal of Finance, 53(1), pp. 267-284.
50. Savor, P. G., 2012. Stock returns after major price shocks: The impact of information. Journal of Financial Economics, 106(3), pp. 635-659.
51. Schnusenberg, O. and Madura, J., 2001. Do US stock market indexes over‐or underreact?. Journal of Financial Research, 24(2), pp. 179-204.
52. Shachmurove, Y., 2002. The behavior of secondary European stock markets to positive and negative shocks. International Journal of Business, 7(2), pp. 1-16.
53. Shiller, R. J.,1981. Justified by Subsequent Changes in Dividends? The American Economic Review, 71(3), pp. 421-436.
54. Spyrou, S., Kassimatis, K. and Galariotis, E., 2007. Short-term overreaction, underreaction and efficient reaction: evidence from the London Stock Exchange. Applied Financial Economics, 17(3), pp. 221-235.
55. Stefanescu, R. and Dumitriu, R., 2015. Impact of the Shocks from NYSE on the Romanian Capital Markets. Risk in Contemporary Economy, pp. 371-376.
56. Stefanescu, R., Dumitriu, R. and Nistor, C., 2012. Overreaction and underreaction on the Bucharest Stock Exchange. Proceedings of the 18th International Conference "The Knowledge-Based Organization", Sibiu.
57. Tripathi, V. and Aggarwal, S., 2009. The Overreaction Effect in the Indian Stock Market. Asian Journal of Business and Accounting, 2(1&2), pp. 93-114.
58. Wong, M. C.,1997. Abnormal stock returns following large one-day advances and declines: Evidence from Asia-Pacific markets. Financial Engineering and the Japanese Markets, 4(2), pp. 171-177.
59. Veronesi, P.,1999. Stock market overreactions to bad news in good times: a rational expectations equilibrium model. The Review of Financial Studies, 12(5), pp. 975-1007.
60. Zarowin, P.,1989. Does the stock market overreact to corporate earnings information? The Journal of Finance, 44(5), pp. 1385-1399.
2. Ajayi, R. A. and Mehdian, S.,1994. Rational investors' reaction to uncertainty: Evidence from the world's major markets. Journal of Business Finance & Accounting, 21(4), pp. 533-545.
3. Alfaro, L., Chari, A., Greenland, A. N. and Schott, P. K., 2020. Aggregate and firm-level stock returns during pandemics, in real time. NBER Working Paper No. 26950, [online] Available at:
4. Ali, A. and Trombley, M. A., 2006. Short sales constraints and momentum in stock returns. Journal of Business Finance & Accounting, 33(3‐4), pp. 587-615.
5. Alonso, A. and Rubio, G. (1990). Overreaction in the Spanish equity market. Journal of Banking & Finance, 14(2-3), pp. 469-481.
6. Andersen, T. G., Bollerslev, T., Diebold, F. X. and Vega, C., 2003. Micro effects of macro announcements: Real-time price discovery in foreign exchange. American Economic Review, 93(1), pp. 38-62.
7. Atkins, A. B. and Dyl, E. A., 1990. Price reversals, bid-ask spreads, and market efficiency. Journal of Financial and Quantitative Analysis, 25(4), pp. 535-547.
8. Baker, S. R., Bloom, N., Davis, S. J., Kost, K. J., Sammon, M. C. and Viratyosin, T., 2020. The unprecedented stock market impact of COVID-19. NBER Working Paper No. 26945, [online] Available at:
9. Bernard, V. L. and Thomas, J. K., 1990. Evidence that stock prices do not fully reflect the implications of current earnings for future earnings. Journal of Accounting and Economics, 13(4), pp. 305-340.
10. Brooks, R. M., Patel, A. and Su, T., 2003. How the equity market responds to unanticipated events. The Journal of Business, 76(1), pp. 109-133.
11. Brown, K. C., Harlow, W. V. and Tinic, S. M., 1988. Risk aversion, uncertain information, and market efficiency. Journal of Financial Economics, 22(2), pp. 355-385.
12. Campbell, J. Y. and Hentschel, L., 1992. No news is good news: An asymmetric model of changing volatility in stock returns. Journal of Financial Economics, 31(3), pp. 281-318.
13. Chan, K. C., 1988. On the contrarian investment strategy. Journal of Business, 61(2), pp. 147-163.
14. Chan, L. K., Jegadeesh, N. and Lakonishok, J., 1996. Momentum strategies. The Journal of Finance, 51(5), pp. 1681-1713.
15. Chordia, T. and Shivakumar, L., 2002. Momentum, business cycle, and time‐varying expected returns. The Journal of Finance, 57(2), pp. 985-1019.
16. Cox, J., Greenwald, D. L. and Ludvigson, S. C., 2020. What Explains the COVID-19 Stock Market?. NBER Working Paper No. 227784, [online] Available at:
17. Da, Z., Engelberg, J. and Gao, P., 2015. The Sum of All FEARS Investor Sentiment and Asset Prices. The Review of Financial Studies 28(1), pp. 1-32.
18. Daniel, K., Hirshleifer, D. and Subrahmanyam, A., 2005. Investor psychology and security market under-and overreaction. Advances in Behavioral Finance, Volume II, pp. 460-501.
19. Dann, L. Y., Mayers, D. and Raab Jr, R. J., 1977. Trading rules, large blocks and the speed of price adjustment. Journal of Financial Economics, 4(1), pp. 3-22.
20. David, A., 1997. Fluctuating confidence in stock markets: Implications for returns and volatility. Journal of Financial and Quantitative Analysis, 32(4), pp. 427-462.
21. De Bondt, W. F. and Thaler, R.,1985. Does the stock market overreact? The Journal of Finance, 40(3), pp. 793-805.
22. De Bondt, W. F. and Thaler, R. H.,1987. Further evidence on investor overreaction and stock market seasonality. The Journal of Finance, 42(3), pp. 557-581.
23. Dreman, D.,1998. Contrarian investment strategies: The psychological edge. New York: Simon and Schuster.
24. Dreman, D. N. and Lufkin, E. A., 2000. Investor overreaction: evidence that its basis is psychological. The Journal of Psychology and Financial Markets, 1(1), pp. 61-75.
25. Dumitriu, R. and Stefanescu, R., 2013. Reactions to Shocks of the Romanian Companies Stock Prices. Proceedings of the Scientific Research & Education in the Air Force – AFASES – 2013, Vol. 1, pp. 43-48.
26. Ederington, L. H. and Lee, J. H., 1993. How markets process information: News releases and volatility. The Journal of Finance, 48(4), pp. 1161-1191.
27. Fama, E. F., Fisher, L., Jensen, M. and Roll, R., 1969. The adjustment of stock prices to new information. International Economic Review, 10(1).
28. Fama, E. F.,1970. Efficient capital markets: a review of theory and empirical work, Journal of Finance, 25, pp. 383-417.
29. Fama, E. F., 1991. Efficient Capital Markets: II. The Journal of Finance, 46(5), pp. 1575-1617.
30. González Maiz Jiménez, J. and Ortiz Calisto, E., 2020. Testing the overreaction hypothesis in the mexican stock market. Contaduría y administración, 65(1).
31. Hong, H., Lim, T. and Stein, J. C., 2000. Bad news travels slowly: Size, analyst coverage, and the profitability of momentum strategies. The Journal of Finance, 55(1), pp. 265-295.
32. Hong, H. and Stein, J. C., 1999. A unified theory of underreaction, momentum trading, and overreaction in asset markets. The Journal of Finance, 54(6), pp. 2143-2184.
33. Howe, J. S.,1986. Evidence on stock market overreaction. Financial Analysts Journal, 42(4), pp. 74-77.
34. Jegadeesh, N. and Titman, S., 1993. Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of Finance, 48(1), pp. 65-91.
35. Jegadeesh, N. and Titman, S., 2001. Profitability of momentum strategies: An evaluation of alternative explanations. The Journal of Finance, 56(2), pp. 699-720.
36. Jennings, R. and Starks, L., 1985. Information content and the speed of stock price adjustment. Journal of Accounting Research, pp. 336-350.
37. Jiang, G. J. and Zhu, K. X., 2017. Information shocks and short-term market underreaction. Journal of Financial Economics, 124(1), pp. 43-64.
38. Lasfer, M. A., Melnik, A. and Thomas, D., 2003. Stock price reaction in stressful circumstances: An international comparison. Journal of Banking and Finance, 27(10), pp. 1959-1977.
39. Lo, A. W. and MacKinlay, A. C.,1988. Stock market prices do not follow random walks: Evidence from a simple specification test. The Review of Financial Studies, 1(1), pp. 41-66.
40. Maheshwari, S. and Dhankar, R., 2014. A critique of overreaction effect in the global stock markets over the past three decades. IOSR Journal of Business and Management, 16(4), pp. 25-32.
41. Maheshwari, S. and Dhankar, R. S., 2017. The Effect of Global Crises on Momentum Profitability: Evidence from the Indian Stock Market. Vision, 21(1), pp. 1-12.
42. Malkiel, B. G., 2003. The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), pp. 59-82.
43. Mazur, M., Dang, M. and Vega, M., 2021. COVID-19 and the march 2020 stock market crash. Evidence from S&P1500. Finance Research Letters, 38.
44. Michayluk, D. and Neuhauser, K. L., 2006. Investor overreaction during market declines: Evidence from the 1997 Asian financial crisis. Journal of Financial Research, 29(2), pp. 217-234.
45. Musnadi, S. and Majid, M. S. A., 2018. Overreaction and underreaction anomalies in the Indonesian stock market: A sectoral analysis. International Journal of Ethics and Systems, 34(4), pp. 442-457.
46. Mynhardt, R. H. and Plastun, A., 2013. The overreaction hypothesis: The case of Ukrainian stock market. Corporate Ownership and Control, 11(1 ), pp. 406-422.
47. Ozoguz, A., 2009. Good times or bad times? Investors' uncertainty and stock returns. The Review of Financial Studies, 22(11), pp. 4377-4422.
48. Pham, V. T. L. and Tô, T. D., 2007. Abnormal returns after large stock price changes: Evidence from Asia-Pacific markets. In Kim, S. -J. and Mckenzie M. D. (Eds.), Asia-Pacific financial markets: integration, innovation and challenges (International Finance Review, Vol. 8). Emerald Group Publishing Limited, Bingley, pp. 205-227.
49. Rouwenhorst, K. G., 1998. International momentum strategies. The Journal of Finance, 53(1), pp. 267-284.
50. Savor, P. G., 2012. Stock returns after major price shocks: The impact of information. Journal of Financial Economics, 106(3), pp. 635-659.
51. Schnusenberg, O. and Madura, J., 2001. Do US stock market indexes over‐or underreact?. Journal of Financial Research, 24(2), pp. 179-204.
52. Shachmurove, Y., 2002. The behavior of secondary European stock markets to positive and negative shocks. International Journal of Business, 7(2), pp. 1-16.
53. Shiller, R. J.,1981. Justified by Subsequent Changes in Dividends? The American Economic Review, 71(3), pp. 421-436.
54. Spyrou, S., Kassimatis, K. and Galariotis, E., 2007. Short-term overreaction, underreaction and efficient reaction: evidence from the London Stock Exchange. Applied Financial Economics, 17(3), pp. 221-235.
55. Stefanescu, R. and Dumitriu, R., 2015. Impact of the Shocks from NYSE on the Romanian Capital Markets. Risk in Contemporary Economy, pp. 371-376.
56. Stefanescu, R., Dumitriu, R. and Nistor, C., 2012. Overreaction and underreaction on the Bucharest Stock Exchange. Proceedings of the 18th International Conference "The Knowledge-Based Organization", Sibiu.
57. Tripathi, V. and Aggarwal, S., 2009. The Overreaction Effect in the Indian Stock Market. Asian Journal of Business and Accounting, 2(1&2), pp. 93-114.
58. Wong, M. C.,1997. Abnormal stock returns following large one-day advances and declines: Evidence from Asia-Pacific markets. Financial Engineering and the Japanese Markets, 4(2), pp. 171-177.
59. Veronesi, P.,1999. Stock market overreactions to bad news in good times: a rational expectations equilibrium model. The Review of Financial Studies, 12(5), pp. 975-1007.
60. Zarowin, P.,1989. Does the stock market overreact to corporate earnings information? The Journal of Finance, 44(5), pp. 1385-1399.
Published
2022-05-24
How to Cite
Dumitriu, R. (2022). Short term reactions on the Bucharest Stock Exchange before and during Coronavirus Pandemic. Vanguard Scientific Instruments in Management, 17. Retrieved from https://vsim-journal.info/index.php?journal=vsim&page=article&op=view&path[]=274
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