Starts and refutations of the Covid-19 rumors:Evidence from the reaction of the stock market

By manually collecting data on Internet-based rumors concerning COVID-19,we investigate the market reactions to the spread of such rumors and the government’s refutation of them. We find that frightening(reassuring) rumors have a negative(positive) impact on investors. The refutation of frightening rumors triggers a positive market response, whereas the refutation of reassuring rumors does not cause a significant market reaction. Further analysis shows that there is a stock price drift when frightening rumors are refuted by governments. Our conclusions remain robust after considering endogeneity.Our findings support the notion that epidemic-related rumors affect investors’ decisions, which add to literatures of the market responses of companies in the context of the COVID-19 pandemic and provide incremental evidence for the‘‘the spiral of silence” theory.