Do Investors Repeat History: Evidence from Post-pandemic Pharmaceuticals Industry

Abstract

The pharmaceuticals industry in China has boomed because of the outbreak of COVID-19, but investors’ overreaction brings it to a sharp volatility. With the time going on, the pandemic has been well controlled recently, and investors have developed a deeper perception of it, thus the situation becomes different. However, few researchers move their attention to problems in the post-pandemic world: how the pharmaceuticals industry perform now and whether investors learn something from the history. These problems do make sense as they are more related to what people face of the moment. By building VAR and ARMA-GARCH-X model, this research conducts a time series analysis on these topics in the post-pandemic background. Since the series are stationary after some processing and the models pass strict test, some reliable conclusions are reached. It is found that the pharmaceuticals industry is less affected by COVID-19 nowadays as the pandemic has been normalized. What’s more, although investors repeat history, the degree of their irrationality is mitigated, indicating that history lessons at least leave some positive impacts on investors’ behaviors. Such conclusions suggest that policy makers should carry out hedging measures to reduce possible overreactions, and that investors should not follow the trend blindly, or the bubble will burst at any time.