Impacts of environmental uncertainty on investment stocks perception under the holiday effect

PLOS ONE RESEARCH ARTICLE Impacts of environmental uncertainty on investment stocks perception under the holiday effect Shih-Yung Wei1, Li-Wei Lin ID2* 1 School of Mathematics & Statistics, Shaoguan University, Shaoguan City, Guangdong, China, 2 College of Business Administration, Fujian Jiangxia University, Fuzhou City, Fujian, China a1111111111 a1111111111 a1111111111 a1111111111 a1111111111 OPEN ACCESS Citation: Wei S-Y, Lin L-W (2023) Impacts of environmental uncertainty on investment stocks perception under the holiday effect. PLoS ONE 18(8): e0284745. https://doi.org/10.1371/journal. pone.0284745 Editor: Ricky Chee Jiun Chia, Universiti Malaysia Sabah, MALAYSIA Received: November 9, 2022 * Abstract This study explored how the holiday effect impacts the fluctuations in various scale indexes. Using differential and double-difference methods, the researchers of this study analyzed the impact of the lockdown in Wuhan, China on the holiday effect during the COVID-19 pandemic. The research objects used in this study include CSI All Share, CNI1000, CNI 2000, CNI Large Cap., CNI Mid-Cap., and CNI Small Cap. This study found that on behalf of the Chinese market index and the large, medium, and small-scale index, stock volatility is evident on the next day following successive holidays. Meanwhile, greater volatility is observed in small stocks’ 4-day vacation (May 1, 11) than in a two-day vacation. The researchers discovered that the sealing effect causes investors to feel uncertain about the increased stock volatility. In terms of size, the net impact of the pandemic on the stock holiday effect is also greater for small stocks than for large stocks. This study’s main contribution is the GARCH +DID hybrid method. Accepted: April 5, 2023 Published: August 3, 2023 Peer Review History: PLOS recognizes the benefits of transparency in the peer review process; therefore, we enable the publication of all of the content of peer review and author responses alongside final, published articles. The editorial history of this article is available here: https://doi.org/10.1371/journal.pone.0284745 Copyright: © 2023 Wei, Lin. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Data Availability Statement: We use Taiwan TEJ database source.(Taiwan’s largest database website). https://www.tej.com.tw/. Funding: The authors received no specific funding for this work. 1. Introduction COVID-19’s sudden emergence in mainland China forced citizens to stay home while still being required to report to work and attend classes remotely. Despite the sudden changes in the citizens’ daily activities due to the lockdown brought about by the COVID-19 pandemic, the stock market continues its operations, allowing investors to trade and buy stocks online. The efficient market hypothesis asserts that if a security market is efficient, security prices should fully and immediately reflect all relevant information. However, many empirical results in recent years have found that the futures market price has some abnormal phenomena related to time, which is quite different from the efficient market hypothesis of the security market. The abnormal phenomenon represents a regular change in the financial market, and it becomes an important indicator for investors to obtain excess returns and avoid risks. In general, time-dependent anomalies are classified as follows: day effect, overnight effect, weekend effect, month effect, and January effect. The holiday effect is primarily responsible for the weekend effect and the January effect. In the 1960s, the study of asymmetric information gave rise to signal theory. Investors face numerous investment risks due to information asymmetry. Beretta and Bozzolan (2004) PLOS ONE | https://doi.org/10.1371/journal.pone.0284745 August 3, 2023 1 / 12 PLOS ONE Competing interests: The authors have declared that no competing interests exist. Environmental uncertainty on the perception of investment stocks pointed out that it is critical for investors to consider the company’s risk disclosure during the investment process [1]. Elshandidy, Fraser, and Hussainey (2013) mentioned that risk disclosure is related to the company’s risk [2]. The COVID-19 pandemic has caused panic and environmental uncertainty among market investors. Different modes of consumption were introduced, along with inflation, monetary easing policy, and rising interest rates, among others. The introduction of these signals caused investors to risk their investments. Considering that this information will impact investors’ investment decisions, the researchers of this study aim to determine investors’ ability to cope with higher investment risks. The Federal Reserve Board of the United States announced in June 2022 that it expected to raise interest rates by three cents due to inflation, causing a sharp drop in the Dow Jones stock market and investors’ confidence and risk appetite. As a result of inflation, investors preferred to hold their money, and they also considered the risks that other investors experienced in the stock market. Many stock investments have observed increased risk and uncertainty due to the COVID19 pandemic. Taiwan’s Ruentex Group was affected by the US interest rate hike in 2022 and suffered losses after securing US dollar bonds. Indirectly, the stock price of the entire Ruentex Group dropped for three consecutive days. Many uncertain market factors can influence investors’ decisions, and the presence of risks can affect subsequent stock prices. Narayan (2020A) mentioned that the impact of the COVID-19 pandemic resulted in more information being generated in the market [3]. The researchers of this study investigated the data of A-share listed companies in China. The small and large stocks in China were then analyzed after collecting a large amount of data. According to Benartzi et al. (2007), stock price movements have become a normal relationship [4]. Considering the changes in investors’ risk appetite and investment decisions during the COVID-19 pandemic, the researchers of this study raise the question: Is it due to the stock market’s volatility during the pandemic? This type of research study is the first in mainland China, which can broaden the scope of market research in the country. The researchers of this study addressed the gaps in previous stock price research by taking into account specific factors, such as the environment and war. The study used an innovative research method, combining GARCH and DID. Using this method, the researchers aim to strengthen the prediction correctness of the whole research. In this study, the researchers solved the final accuracy technology for predicting stock prices, allowing investors to make more accurate decisions. We can summarize the factors that influe (...truncated)