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Capital Market Reactions to the Arrival of COVID-19: A Developing Market Perspective

Author

Listed:
  • Abu Taleb Mohammad Adnan

    (BGMEA University of Fashion and Technology (BUFT), Dhaka, Bangladesh)

  • Mohammad Mahadi Hasan

    (Anwar Khan Modern University, Dhaka, Bangladesh)

  • Ezaz Ahmed

    (Columbia College, Columbia, USA)

Abstract

Research findings on Capital markets’ reaction to infectious diseases in emerging market contexts are not comprehensible. Therefore, using the daily individual stock’s return of 311 listed firms during an estimation period of 250 trading days; this research applies an Event Study Methodology to define the immediate stock market response to Covid19’s arrival in Bangladesh. Mean Return Model, Market Return Model, and Market model are applied to determine the Average Abnormal Returns and Cumulative Average Abnormal Returns for short term event window. Both Parametric and non-parametric tests of the significance of returns around the several event windows suggest that, despite the perceived weak market efficiency, the local stock market shows unprecedented efficient market reaction to the announcement. The significant statistical difference of CAAR between industry segments in both pre and post-event windows signifies that the negative impact of the announcement was identical for all industry segments. Behavioral overreaction induced Panic selling and herding effect has also been observed among investors due to the announcement. Findings from the study will be useful for investors and financial analysts in accessing the unpredictable systematic risk in portfolio diversification while facilitating policymakers to construct contingency strategy.

Suggested Citation

  • Abu Taleb Mohammad Adnan & Mohammad Mahadi Hasan & Ezaz Ahmed, 2020. "Capital Market Reactions to the Arrival of COVID-19: A Developing Market Perspective," Economic Research Guardian, Weissberg Publishing, vol. 10(2), pages 97-121, December.
    • Handle: RePEc:wei:journl:v:10:y:2020:i:2:p:97-121
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    References listed on IDEAS

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    1. Akhtaruzzaman, Md & Boubaker, Sabri & Sensoy, Ahmet, 2021. "Financial contagion during COVID–19 crisis," Finance Research Letters, Elsevier, vol. 38(C).
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    Cited by:

    1. ATM Adnan & Sameer Al Johani, 2023. "Stock Market Reaction to COVID-19: A Cross-Sectional Industry Analysis in Frontier Market," IIM Kozhikode Society & Management Review, , vol. 12(2), pages 157-181, July.
    2. Mohanasundaram Thangamuthu & Suneel Maheshwari & Deepak Raghava Naik, 2022. "Volatility Spillover Effects during Pre-and-Post COVID-19 Outbreak on Indian Market from the USA, China, Japan, Germany, and Australia," JRFM, MDPI, vol. 15(9), pages 1-15, August.
    3. Nazreen Tabassum Chowdhury & Nurul Shahnaz Mahdzan & Mahfuzur Rahman, 2024. "Beyond Intuition: The Role of Financial Knowledge in Navigating Investments in Emerging Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 267-281, July.

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    More about this item

    Keywords

    COVID19; Capital market; Event study; emerging Economy; Bangladesh;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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