Stock Market Reaction to COVID-19: A case of Asian Countries’

Abstract

Stock markets are essential components of an economy and are important indicators of the economic and financial health of a country. Therefore, understanding the behavior of stock markets is crucial to the economic health of any country. Unprecedented events such as shocks, epidemics, and pandemics have all been shown to have affected the global financial market. In this study, we study the impact of the COVID-19 pandemic on stock market fluctuations and their daily returns in Asia. To investigate the effect of COVID-19 on the stock market volatility, we consider 27 Asian countries for the period starting from the first case of COVID-19 in each country respectively till 31 December 2020. The daily stock market returns data was extracted from each country’s chosen stock market index. Using the EGARCH model, we generated the volatility series and this data was analyzed based on the comparison between mean returns and volatility. For better understanding, the sample data was divided into two waves to investigate the vulnerability of the Asian stock markets. Our findings suggest that higher stock market volatility was experienced during the first wave as compared to the second wave. We used growth in daily new cases and new deaths as proxies by employing panel pooled data of 20 Asian countries. Our findings suggest that both growth in daily new cases and new deaths are negatively associated with daily stock market returns. We further divided the sample based on region and evaluated the region-wise impact of the pandemic on daily stock market returns. Findings show that growth in daily new Coronavirus cases significantly effect of stock market returns in East and Western Asia only. However, growth in daily new deaths associated with COVID-19 do not significantly influence stock market returns regionally.