Mood Sensitive Stocks and Sustainable Cross-Sectional Returns During the COVID-19 Pandemic: An Analysis of Day of the Week Effect in the Chinese A-Share Market

Qurat Ul Ain; Tamoor Azam; Tahir Yousaf; Muhammad Zeeshan Zafar; Yasmeen Akhtar

doi:10.3389/fpsyg.2021.630941

Mood Sensitive Stocks and Sustainable Cross-Sectional Returns During the COVID-19 Pandemic: An Analysis of Day of the Week Effect in the Chinese A-Share Market

Front Psychol. 2021 Feb 26:12:630941. doi: 10.3389/fpsyg.2021.630941. eCollection 2021.

Authors

Qurat Ul Ain¹, Tamoor Azam², Tahir Yousaf³, Muhammad Zeeshan Zafar⁴, Yasmeen Akhtar⁵

Affiliations

¹ School of Public Finance and Taxation, Southwestern University of Finance and Taxation, Chengdu, China.
² School of Management and Economics, Kunming University of Science and Technology, Kunming, China.
³ Department of Business Studies, Business School of Bahria University, Karachi, Pakistan.
⁴ Department of Management Sciences, University of Central Punjab, Lahore, Pakistan.
⁵ Noon Business School, University of Sargodha, Sargodha, Pakistan.

Abstract

This study examines two stock market anomalies and provides strong evidence of the day-of-the-week effect in the Chinese A-share market during the COVID-19 pandemic. Specifically, we examined the Quality minus Junk (QMJ) strategy return on Monday and FridayQuality stocks mean portfolio deciles that earn higher excess returns. As historical evidences suggest that less distressed/safe stocks earn higher excess returns (Dichev, 1998).. The QMJ factor is similar to the division of speculative and non-speculative stocks described by Birru (2018). Our findings provide evidence that the QMJ strategy gains negative returns on Fridays for both anomalies because the junk side is sensitive to an elevated mood and, thus, performs better than the quality side of portfolios on Friday. Our findings are also consistent with the theory of investor sentiment which asserts that investors are more optimistic when their mood is elevated, and generally individual mood is better on Friday than on other days of the week. Therefore, the speculative stocks earned higher sustainable stock returns during higher volatility in Chinese market due to COVID-19. Intrinsically, new evidence emerges on an inclined strategy to invest in speculative stocks on Fridays during the COVID-19 pandemic to gain sustainable excess returns in the Chinese A-share market.

Keywords: COVID-19; Quality Minus Junk strategy; mood; speculative stocks; sustainable cross-sectional Returns.