Investors' reactions and firms' actions in the Covid-19 period: The case of Taiwan

This study investigates the stock performance of industries in the panic, rebound, and post-V-shaped periods separated by Covid-19 events in Taiwan, in which industries are classified as the detrimental, impaired, neutral, and beneficial groups. Prices of these four industries slumped about the same in the panic period but subsequently rose differently in the rebound and post-V-shaped periods, implying that investors make investment decisions by perception when facing dread risk but by analytic assessments after dread risk recedes. Regression tests show that prices of individual stocks in the same industry dropped differently in the panic period, reflecting investors' bounded rationality in that they are emotional at the industry level but rational at the firm level. Also, logistic regressions indicate that investors tend to be overoptimistic about the impaired and detrimental industries in the rebound period. More than 10% of firms repurchased their stocks but only a small portion of firms issued equity in the Covid-19 period, revealing that firms would participate in short-run trading but halt long-run investments when facing uncertainty. This study contributes to the literature by showing investors' behavior and firms' actions in different periods of Covid-19.