Stock markets' reaction to COVID-19: evidence from the six WHO regions

Anas Ali Al-Qudah · Asma Houcine

64 citations0/0 files storedJournal of Economic Studies

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COVID-19 Pandemic Impacts Financial Risk and Volatility Modeling Market Dynamics and Volatility

Abstract

Purpose This study investigates the effects of the COVID-19 outbreak on daily stock returns for the six major affected WHO Regions, namely: Africa, Americas, Eastern Mediterranean, Europe, South-East Asia and Western Pacific. Design/methodology/approach This study uses an event study method and panel-data regression models to examine the effect of the daily increase in the number of COVID-19 confirmed cases on daily stock returns from 1 March to 1 August 2020 for the leading stock market in major affected countries in the WHO regions. Findings The results reveal an adverse impact of the daily increasing number of COVID-19 cases on stock returns and stock markets fell quickly in response to the pandemic. The findings also suggest that negative market reaction was strong during the early stage of the outbreak between the 26th and 35th days after the initial confirmed cases. We further find that stock markets in the Western Pacific region experienced more negative abnormal returns as compared to other regions. The results also confirm that feelings of fear among investors turned out to be a mediator and a transmission channel for the effect of COVID-19 outbreak on the stock markets. Research limitations/implications This study contributes to financial literature in two ways. First, we contribute to existing literature that has examined the effect of various catastrophes and crises on the stock markets Second, we contribute to the recent emerging literature that examines the impact of COVID-19 on financial markets. Practical implications The study may have implications for policymakers to deal with this outbreak without triggering uncertainty in stock markets and reassure investors' confidence. The study may also be of interest to investors, managers, financial analysts by revealing how the stock markets quickly respond to outbreaks. Originality/value This study is the first study to examine the impact of the COVID-19 outbreak on the leading stock markets of the WHO regions.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1968An Empirical Evaluation of Accounting Income Numbers 1968THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–1964 2020Financial markets under the global pandemic of COVID-19 1997EVENT STUDIES IN MANAGEMENT RESEARCH: THEORETICAL AND EMPIRICAL ISSUES.2020COVID-19 and finance: Agendas for future research 2020The Unprecedented Stock Market Reaction to COVID-19 2020Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns

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