key: cord-0939367-2dot41tn
authors: Corbet, Shaen; Hou, Yang; Hu, Yang; Lucey, Brian; Oxley, Les
title: Aye Corona! The contagion effects of being named Corona during the COVID-19 pandemic
date: 2020-05-20
journal: Finance research letters
DOI: 10.1016/j.frl.2020.101591
sha: 22636f328ff791418a8f3ecedd8b4fb10a13cdc6
doc_id: 939367
cord_uid: 2dot41tn

Abstract In the midst of the 2020 global COVID-19 pandemic and subsequent financial market collapse, corporate entities have to navigate a number of truly unforeseen contagion risks. However, one such group included those who shared their corporate identity with aspects of the rapidly evolving coronavirus. Our results indicate the existence of sharp, dynamic and new correlations between companies related to the term ‘corona’, outside of pre-existing interrelationships. We provide a number of observations as to why this situation occurred.

In late 2019, rumours had begun to persist from China that a new virus had started to spread, generating what had been described as symptoms of 'severe pneumonia' which led to an exceptional rate of fatality amongst the elderly and most vulnerable in society. In Q1 2020, through the timeline described in Table 1 , COVID-19 (named after "COrona VIrus Disease, 2019") had escalated from a a small marketplace in Wuhan, China, to cause the international social distancing and home isolation of over 1 billion people worldwide, with enormous social, political and economic repercussions to follow (Goodell [2020] , Sharif et al. [2020] ). The dislocating effects on the economy were expected to be unprecedented since the 1920's depression Baldwin and di Mauro [2020] . However, in the middle of this chaos, an abnormality began to manifest. Brands that shared the same name with aspects of the 'coronavirus' began to report abnormal losses and sustained periods of trading volatility. While financial market conditions had deteriorated quite extensively, some companies were experiencing added pressures simply because their name or product base had in some way contained the term 'corona'. This research sets out to establish how this pressure manifested.

While not exclusive to pandemics, there has been some evidence of similar naming abnormalities.

A classic in this genre is the renaming of companies to take advantage of the dot.com boom, documented in Cooper et al. [2001] . Benos and Jochec [2013] found evidence that US companies whose names contain the words "America" or "USA" earn positive abnormal returns of about 6% per annum during World War II, the Korean War, and recent Middle East conflicts. Kot [2011] investigated similar response in Hong Kong, Biktimirov and Durrani [2017] in Canada, Mase [2009] for companies in the UK and Kadapakkam and Misra [2007] found evidence supporting significant declines in trading volume and prices on dates when tickers were changed for companies. Kashmiri and Mahajan [2014] analysed as to whether pricing abnormalities existed for entities that were founded on historical found family ties. Whereas, investigated the dynamics of this behaviour in falling markets, identified changing dynamics of flows in the markets for mutual funds. In recent works, Jain and Jain [2019] and Sharma et al. [2020] analysed the pricing effects of companies adding the term blockchain to their names. Head et al. [2009] investigates the salience issue further, from the perspective of memorable stock tickers yielding excess returns, further reinforced by Xing et al. [2016] . In recent years, naming effects have also been identified to have influential when considering the addition of the terms 'blockchain' and 'cryptocurrency' into the corporate identity of the company, or through the addition of highly speculative cryptocurrency projects ).

We investigate if there is evidence of a connection between the onset of the COVID-19 pandemic and any negative effects on companies with similarities in identity with the virus. To begin we conducted a thorough search using both Thomson Reuters Eikon and Bloomberg to search for all corporate entities, with active, liquid listed shares and market capitalisation values above $10 million as of February 2020 where Corona was a substantial component of business or the business name. The results are presented in Table 2 , with evidence of the associated share price behaviour and volatility presented in Figure 1 . We can observe in the shaded regions of these graphs quite a strong variation in share price performance, with Constellation Brands, as owner and importer of the beer brand, Corona in the United States (STZ) and Corona Corp (5909.JP) presenting evidence of sharp declines during the pandemic period, while Coronation Fund Managers (CML), a South African company, presenting evidence of a fall in share price, but noticeably less than the other analysed companies. However, visual inspection presents evidence of sharp, elevated and sustained pricing volatility for both STZ and CML in comparison to that of 5909.JP.

In this study, we use hourly, and for robustness, daily returns to analyse the dynamic correlations between companies unfortunate to share their name with 'corona' and a range of financial assets including Chinese financial markets, denoted as the epicentre of the COVID-19 pandemic, the Dow Jones Industrial Average as a measure of international financial performance (Ekinci et al. [2019] ), gold as a measure of the international flight to safety (Akyildirim et al. [2020] ) and Bitcoin, which has presented evidence of inverse correlations with some international stock exchanges, thereby providing strong diversification benefits (Akhtaruzzaman et al. [2019] , ).

Our hourly returns are calculated as:

where r t,m is the return for hour h on trading day t. Time periods with no trading activity are determined to be best represented by the last traded price. Hourly data 11 March 2019 to 10 March 2020 (5,701 observations), where the period denoted as both pre-and post-COVID-19 pandemic (4,580 and 1,122 observations respectively) is denoted to be before and after 31 December 2019.

Data is sourced through Thomson Reuters Eikon. Evidence of sharp declines are evident in the period thereafter through exceptionally changes evident in the minima, skewness and kurtosis of these short-term returns. The summary statistics of the selected variables are presented in Table   3 . Times are adjusted to Greenwich Mean Time to allow for comparability across the selected geographical regions. For the purpose of exchange comparison out-of-session, daily returns are used to measure dynamic correlations (similarly to the methods used by , Katsiampa et al. [2019a,b] ). The time period also allows us to disaggreagate the effects of the coronavirus pandemic from the generalised equity market rout that was occasioned by the widespread arrival of the virus to the USA and European countries (on Feb 27 new cases outside China exceeded those within China for the first time, as presented in Figure 2 ) and the "oil price war" which began on 9-10 March. The changing correlations between the identified companies susceptible to the 'corona' naming shock and these financial assets are presented in Table 4 . Comparing the periods both before and after the COVID-19 pandemic for each of our selected companies. In the case of each analysed company, there is evidence of sharp elevated positive correlations between each and the selected analysed assets. However, for companies such as Constellation Brands Inc, the owner of the beer branded Corona, while possessing a correlation of 0.032 and 0.025 respectively with both of the Shanghai and Shenzhen stock exchanges, both correlations increase sharply to 0.286 and 0.315 respectively. All companies, investigated present evidence of sharp elevations in correlation, however, this interaction between STZ, CML and Asian markets is particularly interesting as domestic correlations do not follow the same trend. This evidence suggests a sharp decoupling of the market performance of each company with their domestic exchange with simultaneous evidence of interactions where none existed before.

To specifically analyse the dynamic correlations between the corporate entities exposed to reputational exposure due to naming similarity from the COVID-19 pandemic, we employ a standard GARCH (1,1) methodology of Bollerslev [1986] and extract dynamic conditional correlations (of Engle [2002] ) that takes the form:

where r t , e t and h t are the returns of the investigated lagged corporate returns, international exchanges (Shanghai SE, Shenzhen SE and DJIA) and hedging alternatives (WTI, gold and BTC) at time t respectively. σ, η and γ represent the effects of lagged returns of each selected variable on the returns of the company's hourly price volatility. The variance equation includes the long-term average volatility α 0 . Similar methodological structures were utilised by Corbet et al. [2015] and . We explore the dynamic co-movements via the dynamic conditional correlations of Engle [2002] . The GARCH (1,1) specification requires that in the conditional variance equation, parameters α 0 , α 1 and β should be positive for a non-negativity condition and the sum of α 1 and β should be less than one to secure the covariance stationarity of the conditional variance. Moreover, the sum of the coefficients α 1 and β must be less than or equal to unity for stability to hold. The GARCH (1,1) methodology used in this study has the following form:

R t−j represents the lagged value of the selected companies, j number of hourly periods before R t is observed. b 2 Sg t represents the interaction between the selected company and the Shanghai Stock Exchange, while b 3 Sz t and b 4 DJIA t represents the interactions with the Shenzhen Stock Exchange and DJIA respectively. Finally, b 5 W T I t , b 6 G t and b 7 BT C represent the relationship between the selected companies and the returns of WTI, gold and Bitcoin respectively. D t and t i=1 D v are included in both the mean and variance equations to provide estimates of the corporate pricing and volatility estimates relating directly to the COVID-19 pandemic. Bollerslev [1986] argued for restrictions on the parameters for positivity, ω > 0, α ≥ 0 and β ≥ 0, and the wide-sense stationarity Bollerslev [1986] also proved that if the fourth order moment exists, then the model can handle leptokurtosis. Bonferroni adjusted results are presented in this analysis. To cater the multiple hypothesis problem, we adjust the significance level using the Bonferroni correction, which leads to a significance level of 1%. The generalised Bonferroni method adjusts the significance level such that hypothesis H 0,(i) , i = 1, . . . , s, is deemed rejected if and only if:

This procedure has the advantage of being robust to the dependence structure of the hypothesis tests.

In Table 5 , we present the results of our DCC-GARCH methodology. We clearly observe that both STZ and 5909.JP have had no correlation with Chinese financial markets. However, this is not the case for CML. Each company analysed had strong positive interactions with the DJIA, with STZ being the most positively related (+0.7543) as it is an American company traded on the NYSE.

However, without any direct exposure outside of un-diversifiable risk, all of the analysed companies exhibit strong negative hourly returns in the period after the announcement of the existence of the COVID-19 pandemic. Further, there is an exceptionally large significant increase in hourly volatility for each of the analysed companies. While in Figure 3 , we observe the time-varying dynamic conditional correlations between each exposed company and the two key Chinese markets, the Shanghai and Shenzhen stock exchanges. In each case, after mitigating international effects, there is evidence of a sharp increase in dynamic correlations between the companies and Chinese markets with the exception of CML in South Africa. There is clear evidence that Constellation Brands (STZ) and Corona Corp (5909:JP) experienced a sharp and sustained deterioration in share prices outside of that expected through market-driven forces. The reasons for so would be deemed somewhat irrational, but mostly very unfortunately driven by name association. In general, all three considered companies have no interactions with hedging alternatives with two exceptions. 5909.JP has negative interactions with gold while CML has positive interactions with WTI. For robustness, a similar methodology was applied in Figure 4 for comparable companies such as Anheuser-Busch InBev SA/NV, Ambev SA and United Breweries Co. Inc. We observe that similar sharp elevations in dynamic correlations with both the Shanghai and Shenzhen stock exchanges are not observed.

The source of this unwarranted reputational damage can be identified through a number of social media memes linking the beer 'Corona' which is owned by Constellation Brands (STZ) and the coronavirus, known as the COVID-19 pandemic. The intention to buy Corona beer in the United States among adults has fallen to its lowest level in the past two years, while the perception of the brand has also collapsed. In a 27 February 2020 release, 5W conducted phone surveys with 737 American beer drinkers, identifying that 38% of respondents would not buy Corona under any circumstances since the beginning of the coronavirus. Further, 16% of respondents stated confusion as to whether Corona beer was actually related to the coronavirus. A measure of how likely consumers are to buy the beer has fallen to a two-year low (according to YouGov, a market research firm). Corona's rating according to the firm had fallen to 51 from 75 at the start of the 2020, indicating a strong decline in sentiment towards the brand.

Further, the trading volumes in the investigated companies increased sharply during this time, indicating a potential role for AI and algorithmic trading strategies in the sharp decline in share price in line with the collapse of corporate sentiment. Overall, it is very much evident that companies such as STZ experienced a sharp and sustained deterioration on the fair valuation of their corporations during this time due to the unfortunate coincidence of sharing their names with an international pandemic.

There is a significant body of research, to which we add, which suggests that name and brand salience is an important pricing element for companies. We document negative knock-on effects from the coronavirus pandemic on some companies with related names, over and above the actual economic effects. While such companies have not in any way been connected or responsible for the COVID-19 outbreak, they appear to have unfortunately been the target of sustained reputational damage. The role of algorithmic trading cannot be ruled out, as evident in the elevated traded volumes during these times. (10) 194.72 60.20 60.32 Prob >chi2 0.0000 0.0000 0.0000

Note: The presented analysis was conducted using hourly data between the period 11 March 2019 and 10 March 2020 (5,701 observations), where the period denoted as both pre-and post-COVID-19 pandemic (4,580 and 1,122 observations respectively) is denoted to be before and after 31 December 2019.. ***, ** and * indicates statistical significance at the 1%, 5% and 10% levels respectively. 

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Figure 1: Price and volatility behaviour of the selected companies a)

Ticker: 5909:JP)

Coronation Fund Managers Ltd (Ticker: CML)

Note: The above figure represents the price (left-hand axis) and volatility (right-hand axis) behaviour of the selected companies