COVID-19 and Financial Market Reactions: A Cross-Country Analysis of Emerging Economies
DOI:
https://doi.org/10.55737/rl.2025.41079Keywords:
COVID-19, First Case Report, First Lockdown, Second Lockdown, Stock Market Return, South Asia, ChinaAbstract
This study examines the stock market response to COVID-19 in emerging countries of South Asia and China over the period from 2019 to 2021. It uses event study methodology to analyze CARs (cumulative abnormal returns) during the announcement of three events: the first case report, the first lockdown, and the second lockdown. The estimation windows consist of 110 (-10, -120) days earlier the event date, and the windows of event consist of 6 days after the event’s declaration. We discover that the first reported case has less impact on China and Pakistan’s market returns, while India and Bangladesh show statistically significant and negative effects. The further results reveal that the first lockdown announcement in Pakistan, China, and Bangladesh had an adverse effect on market returns; CAR values are negative and significant, but India findings are not statistically significant due to government policies. However, our findings reveal that the second lockdown in China was statistically significant due to its restriction imposed in February. However, the results in other countries during this phase are not statistically significant, as the level of panic decreases after April. Overall, the pandemic has a significant or adverse impact on returns of stock market in China and other countries, and markets are efficient. This study gives perception to investors in handling risks during worldwide health crises by understanding the associations between pandemic events and market performance.
References
Adnan, A. T. M., & Hasan, M. M. (2021). The emergence of covid-19 and capital market reaction: An emerging market scenario analysis. Asian Academy of Management Journal of Accounting and Finance, 17(1), 35–62. https://doi.org/10.21315/aamjaf2021.17.1.2
Al-Qudah, A. A., & Houcine, A. (2022). Stock markets’ reaction to COVID-19: evidence from the six WHO regions. Journal of Economic Studies (Glasgow, Scotland), 49(2), 274–289. https://doi.org/10.1108/jes-09-2020-0477
Alam, M. N., Department of Accounting, College of Commerce and Business Administration, Dhofar University, Alam, M. S., & Chavali, K. (2020). Stock market response during COVID-19 lockdown period in India: An event study. Journal of Asian Finance Economics and Business, 7(7), 131–137. https://doi.org/10.13106/jafeb.2020.vol7.no7.131
Anwar, S., Singh, S., & Jain, P. K. (2017). Impact of cash dividend announcements: Evidence from the Indian manufacturing companies. Journal of Emerging Market Finance, 16(1), 29–60. https://doi.org/10.1177/0972652716686238
Ashraf, B. N. (2020). Stock markets’ reaction to COVID-19: Cases or fatalities? Research in International Business and Finance, 54, 101249. https://doi.org/https://doi.org/10.1016/j.ribaf.2020.101249
Bahrini, R., & Filfilan, A. (2020). Impact of the novel coronavirus on stock market returns: evidence from GCC countries. Quantitative Finance and Economics, 4(4), 640-652. https://doi.org/10.3934/qfe.2020029
Bannigidadmath, D., Narayan, P. K., Phan, D. H. B., & Gong, Q. (2022). How stock markets reacted to COVID-19? Evidence from 25 countries. Finance Research Letters, 45(102161), 102161. https://doi.org/10.1016/j.frl.2021.102161
Bash, A. (2020). International evidence of covid-19 and stock market returns: An event study analysis. International Journal of Economics and Financial Issues, 10(4), 34–38. https://doi.org/10.32479/ijefi.9941
Bowman, R. G. (1983). Understanding and conducting event studies. Journal of Business Finance & Accounting, 10(4), 561–584. https://doi.org/10.1111/j.1468-5957.1983.tb00453.x
Brown, S. J., & Warner, J. B. (1985). Using daily stock returns: The case of event studies. Journal of financial economics, 14(1), 3-31. https://doi.org/10.1016/0304-405X(85)90042-X
Carlini, F., Farina, V., Gufler, I., & Previtali, D. (2024). Do stress and overstatement in the news affect the stock market? Evidence from COVID-19 news in The Wall Street Journal. International Review of Financial Analysis, 93, 103178. https://doi.org/https://doi.org/10.1016/j.irfa.2024.103178
Chen, M. P., Lee, C. C., Lin, Y. H., & Chen, W. Y. (2018). Did the SARS epidemic weaken the integration of Asian stock markets? Evidence from smooth time-varying cointegration analysis. Economic research-Ekonomska istraživanja, 31(1), 908-926. https://doi.org/10.1080/1331677X.2018.1456354
Cucinotta, D., & Vanelli, M. (2020). WHO Declares COVID-19 a Pandemic. Acta Biomed, 91(1), 157-160. https://doi.org/10.23750/abm.v91i1.9397
Dharani, M., Hassan, M. K., Huda, M., & Abedin, M. Z. (2022). Covid-19 pandemic and stock returns in India. Journal of Economics and Finance. https://doi.org/10.1007/s12197-022-09586-8
Endri, E., Aipama, W., Razak, A., Sari, L., & Septiano, R. (2021). Stock price volatility during the COVID-19 pandemic: The GARCH model. Investment Management and Financial Innovations, 18(4), 12–20. https://doi.org/10.21511/imfi.18(4).2021.02
Fama, E. F., Fisher, L., Jensen, M. C., & Roll, R. (1969). The adjustment of stock prices to new information. International Economic Review, 10(1), 1-21. https://doi.org/10.2307/2525569
Haque, S., & Chowdhury, D. T. (2020). Impact of Covid-19 in Bangladesh Stock Market. Asian Finance & Banking Review, 4, 22-23. https://doi.org/10.46281/asfbr.v4i2.896
Harjoto, M. A., & Rossi, F. (2023). Market reaction to the COVID-19 pandemic: evidence from emerging markets. International Journal of Emerging Markets, 18(1), 173–199. https://doi.org/10.1108/ijoem-05-2020-0545
Harjoto, M. A., Rossi, F., Lee, R., & Sergi, B. S. (2021). How do equity markets react to COVID-19? Evidence from emerging and developed countries. Journal of Economics and Business, 115(105966), 105966. https://doi.org/10.1016/j.jeconbus.2020.105966
Heyden, K. J., & Heyden, T. (2021). Market reactions to the arrival and containment of COVID-19: An event study. Finance Research Letters, 38(101745), 101745. https://doi.org/10.1016/j.frl.2020.101745
Insaidoo, M., Arthur, L., Amoako, S., & Andoh, F. K. (2021). Stock market performance and COVID-19 pandemic: evidence from a developing economy. Journal of Chinese Economic and Foreign Trade Studies, 14(1), 60–73. https://doi.org/10.1108/jcefts-08-2020-0055
Ji, X., Bu, N., Zheng, C., Xiao, H., Liu, C., Chen, X., & Wang, K. (2022). Stock market reaction to the COVID-19 pandemic: an event study. Portuguese Economic Journal. https://doi.org/10.1007/s10258-022-00227-w
Joshipura, M., & Lamba, A. (2022). Impact of the COVID-19 outbreak on stock returns of Indian healthcare and tourism sectors. Investment Management and Financial Innovations, 20(1), 48–57. https://doi.org/10.21511/imfi.20(1).2023.05
Kamal, J. B., & Wohar, M. (2023). Heterogenous responses of stock markets to covid related news and sentiments: Evidence from the 1st year of pandemic. International Economics, 173, 68-85. https://doi.org/https://doi.org/10.1016/j.inteco.2022.11.001
Khan, M. N., Fifield, S. G. M., & Power, D. M. (2024). The impact of the COVID 19 pandemic on stock market volatility: evidence from a selection of developed and emerging stock markets. SN Business & Economics, 4(6). https://doi.org/10.1007/s43546-024-00659-w
Kumarapperuma, O., Deyshappriya, R., & Rajapaksha, R. M. M. C. (2021). Impact of COVID-19 on Stock Return in Asian Stock Markets. South Asian Journal of Business Insights, 1, 24. https://doi.org/10.4038/sajbi.v1i2.26
Kusumahadi, T. A., & Permana, F. C. (2021). Impact of COVID-19 on global stock market volatility. Journal of Economic Integration, 36(1), 20–45. https://doi.org/10.11130/jei.2021.36.1.20
Li, Y., Zhuang, X., Wang, J., & Dong, Z. (2021). Analysis of the impact of COVID-19 pandemic on G20 stock markets. The North American Journal of Economics and Finance, 58(101530), 101530. https://doi.org/10.1016/j.najef.2021.101530
Liu, H., Manzoor, A., Wang, C., Zhang, L., & Manzoor, Z. (2020a). The COVID-19 Outbreak and Affected Countries Stock Markets Response. International Journal of Environmental Research and Public Health, 17, 2800. https://doi.org/10.3390/ijerph17082800
Liu, M., Choo, W.-C., & Lee, C.-C. (2020). The response of the stock market to the announcement of global pandemic. Emerging Markets Finance and Trade, 56(15), 3562–3577. https://doi.org/10.1080/1540496x.2020.1850441
MacKinlay, A. C. (1997). Event studies in economics and finance. Journal of economic literature, 35(1), 13-39. https://www.jstor.org/stable/2729691
Nurcahyono, N., Hanum, A. N., & Sukesti, F. (2021). The COVID-19 outbreak and stock market return: Evidence from Indonesia. Jurnal Dinamika Akuntansi Dan Bisnis, 8(1), 47–58. https://doi.org/10.24815/jdab.v8i1.18934
Pandey, D. K., & Kumari, V. (2021). Event study on the reaction of the developed and emerging stock markets to the 2019-nCoV outbreak. International Review of Economics & Finance, 71, 467–483. https://doi.org/10.1016/j.iref.2020.09.014
Pendell, D. L., & Cho, C. (2013). Stock market reactions to contagious animal disease outbreaks: An event study in Korean foot‐and‐mouth disease outbreaks: Stock market reactions: Korean foot-and-mouth disease outbreaks. Agribusiness (New York), 29(4), 455–468. https://doi.org/10.1002/agr.21346
Scherf, M., Matschke, X., & Rieger, M. (2021). Stock market reactions to COVID-19 lockdown: A global analysis. Finance Research Letters, 45, 102245. https://doi.org/10.1016/j.frl.2021.102245
Scherf, M., Matschke, X., & Rieger, M. O. (2022). Stock market reactions to COVID-19 lockdown: A global analysis. Finance Research Letters, 45(102245), 102245. https://doi.org/10.1016/j.frl.2021.102245
Shen, H., Fu, M., Pan, H., Yu, Z., & Chen, Y. (2021). The impact of the COVID-19 pandemic on firm performance. In Research on Pandemics (pp. 81-98). Routledge.
Singh, B., Dhall, R., Narang, S., & Rawat, S. (2024). The outbreak of COVID-19 and stock market responses: An event study and panel data analysis for G-20 countries. Global Business Review, 25(3), 606–631. https://doi.org/10.1177/0972150920957274
Sun, Y., Wu, M., Zeng, X., & Peng, Z. (2021). The impact of COVID-19 on the Chinese stock market: Sentimental or substantial? Finance Research Letters, 38, 101838. https://doi.org/https://doi.org/10.1016/j.frl.2020.101838
Topcu, M., & Gulal, O. S. (2020). The impact of COVID-19 on emerging stock markets. Finance research letters, 36, 101691. https://doi.org/https://doi.org/10.1016/j.frl.2020.101691
Ullah, S. (2022). Impact of COVID-19 pandemic on financial markets: A global perspective. Journal of the Knowledge Economy, 1–22. https://doi.org/10.1007/s13132-022-00970-7
Wang, B., Waris, M., Adamiak, K., Adnan, M., Hamad, H. A., & Bhatti, S. M. (2024). The effects of the COVID-19 pandemic period on stock market return and volatility. Evidence from the Pakistan Stock Exchange. PloS One, 19(4), e0295853. https://doi.org/10.1371/journal.pone.0295853
Youssef, M., Mokni, K., & Ajmi, A. N. (2021). Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter? Financial Innovation, 7(1), 13. https://doi.org/10.1186/s40854-021-00227-3
Yu, X., & Xiao, K. (2024). How does Chinese stock market react to breaking news about COVID-19? Evidence from event study. Heliyon, 10(10). https://doi.org/10.1016/j.heliyon.2024.e30949
Zhang, D., Hu, M., & Ji, Q. (2020). Financial markets under the global pandemic of COVID-19. Finance research letters, 36, 101528. https://doi.org/https://doi.org/10.1016/j.frl.2020.101528
Zhang, W., Cao, S., Zhang, X., & Qu, X. (2023). COVID-19 and stock market performance: Evidence from the RCEP countries. International Review of Economics & Finance, 83, 717–735. https://doi.org/10.1016/j.iref.2022.10.013
Zhou, W., Zhou, Y., Zaremba, A., & Long, H. (2024). Stock market reactions under the shadow of the COVID-19 pandemic: Evidence from China. Journal of Behavioral and Experimental Finance, 42, 100923. https://doi.org/https://doi.org/10.1016/j.jbef.2024.100923
