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Stock market reaction to the COVID-19 pandemic: an event study

Author

Listed:
  • Xiuping Ji

    (The University of Sussex)

  • Naipeng (Tom) Bu

    (Shandong University)

  • Chen Zheng

    (Leeds Beckett University)

  • Honggen Xiao

    (The Hong Kong Polytechnic University)

  • Caixia Liu

    (Shandong University)

  • Xuesheng Chen

    (Shandong University)

  • Kangping Wang

    (Shandong University)

Abstract

The COVID-19 pandemic created unprecedented challenges for communities and economies around the world. Based on 13 leading global stock indices, the event study method is adopted in this research to explore the impact of the COVID-19 pandemic on the performance of the stock market indices in the short term. Regression results show that the global stock markets performed poorly in response to the COVID-19 pandemic. The findings of the event study imply that the stock markets reacted rapidly and negatively to the COVID-19 pandemic when lockdown restrictions were announced to contain the spread of the novel coronavirus. The Asian stock indices experienced more negative abnormal earnings than the stock indices of the countries outside Asia. Moreover, investor sentiments act as a wedge between financial investment decisions, returns, and fear of uncertainty caused by the pandemic. Furthermore, the panic experienced by investors may be an effective transmission channel through which the COVID-19 outbreak affects the returns on the stock market indices.

Suggested Citation

  • Xiuping Ji & Naipeng (Tom) Bu & Chen Zheng & Honggen Xiao & Caixia Liu & Xuesheng Chen & Kangping Wang, 2024. "Stock market reaction to the COVID-19 pandemic: an event study," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(1), pages 167-186, January.
    • Handle: RePEc:spr:portec:v:23:y:2024:i:1:d:10.1007_s10258-022-00227-w
    DOI: 10.1007/s10258-022-00227-w
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    References listed on IDEAS

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    2. Guglielmo Maria Caporale & Abdurrahman Nazif Çatık & Mohamad Husam Helmi & Coşkun Akdeniz & Ali İlhan, 2024. "Time-varying effects of the COVID-19 pandemic on stock markets and economic activity: evidence from the US and Europe," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(2), pages 529-558, May.
    3. Hideaki Sakawa & Naoki Watanabel, 2024. "Impact of COVID-19 Travel Subsidies on Stock Market Returns: Evidence from Japanese Tourism Companies," JRFM, MDPI, vol. 17(5), pages 1-11, May.
    4. Radulescu, Magdalena & Rao, Amar & Doğan, Buhari & Abbas, Shujaat, 2024. "Co-movement between COVID-19, oil price and American stock market during 2020: Fresh investigation from partial and multiple wavelet methods," Resources Policy, Elsevier, vol. 95(C).

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