The Response of Selected Domestic Capital Markets on the Development of COVID-19 Pandemic – a Broader View
DOI:
https://doi.org/10.15678/ZNUEK.2023.0999.0101Keywords:
event study, overreaction, COVID-19, stock markets, abnormal returnsAbstract
Objective: The study examines how the record of the first, hundredth, thousandth, ten-thousandth, one-hundred-thousandth, and millionth cases of COVID-19 affected investor behaviour in capital markets. It also looks at whether the month in which the first case was recorded in a given market affected the direction and strength of investor reactions. Lastly, it verifies whether the two announcements made by the WHO related to COVID-19 differently affected the behaviour of investors in markets where the first case of the epidemic had already been recorded and in markets where there were not yet officially confirmed cases.
Research Design & Methods: Event analysis is used in looking at 77 financial markets.
Findings: Investor reactions to emerging information are extreme. The largest sell-off of shares was observed when the first and hundredth cases of the disease were recorded. No statistically significant and negative abnormal rates of return were found for other points studied. The later the first case was recorded in a given market, the greater the scale of discounting in that market. In markets where the first case of infection had already been recorded, the negative reaction of investors was greater than in markets where the first case had not yet been found.
Implications / Recommendations: A small number of cases and high uncertainty about COVID-19 have a more substantial negative impact on investors than a high number of cases coupled with a better understanding of the pandemic. WHO announcements further contributed to the occurrence of stronger declines in countries in which people had already become infected by COVID-19.
Contribution: The current study is the first of its kind, focusing not only on the first case of COVID-19, but also on other focal points of the evolving pandemic. The other aspects (month, WHO announcements) covered are also analysed from a different, broader view than in other studies.
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