Abstract
In the aftermath of stock market crash due to COVID-19, not all sectors recovered in the same way. Recently, a stock price model is proposed by Mahata et al. (2021) that describes V- and L-shaped recovery of the stocks and indices, but fails to simulate the U- and Swoosh-shaped recovery that arises due to sharp fall, continuation at the low price and followed by quick recovery, slow recovery for longer period, respectively. We propose a modified model by introducing a new parameter theta = +1, 0, - 1 to quantify investors' positive, neutral and negative sentiments, respectively. The model explains movement of sectoral indices with positive financial anti-fragility (phi) showing U- and Swoosh-shaped recovery. Simulation using synthetic fund-flow with different shock lengths, phi, negative sentiment period and portion of fund-flow during recovery period show U- and Swoosh-shaped recovery. It shows that recovery of indices with positive phi becomes very weak with extended shock and negative sentiment period. Stocks with higher phi and fund-flow show quick recovery. Simulation of Nifty Bank, Nifty Financial and Nifty Realty show U-shaped recovery and Nifty IT shows Swoosh-shaped recovery. Simulation results are consistent with stock price movement. The estimated time-scale of shock and recovery of these indices are also consistent with the time duration of change of negative sentiment from the onset of COVID-19. We conclude that investors need to evaluate sentiment along with phi before investing in stock markets because negative sentiment can dampen the recovery even in financially anti-fragile stocks. (c) 2021 Elsevier B.V. All rights reserved.
NSTL
Elsevier