COVID-19 lockdowns, stimulus packages, travel bans, and stock returns.
ABSTRACT: This paper examines the effect of government responses of G7 countries to the coronavirus pandemic (COVID-19) on stock market returns. Using time-series data, we show that lockdowns, travel bans, and economic stimulus packages all had a positive effect on the G7 stock markets. However, lockdowns were most effective in cushioning the effects of COVID-19. Our results are robust to different measures of returns and controls for other factors of returns.
Project description:This study examines how financial contagion occurs through financial and nonfinancial firms between China and G7 countries during the COVID-19 period. The empirical results show that listed firms across these countries, financial and non-financial firms alike, experience significant increase in conditional correlations between their stock returns. However, the magnitude of increase in these correlations is considerably higher for financial firms during the COVID-19 outbreak, indicating the importance of their role in financial contagion transmission. They also show that optimal hedge ratios increase significantly in most cases, implying higher hedging costs during the COVID-19 period.
Project description:With a sample of 49 stock market indices of the developed and emerging markets in the world using the standard event methodology, this paper aims to examine the impacts of the 2019-nCoV outbreak on the global stock markets. Previous studies have supported that macroeconomic news and firm-specific news do impact the stock market returns. This study provides evidence for global stock market reactions to epidemics. The study concludes that the 2019-nCoV outbreak has significantly impacted the global stock markets with the Asian stock markets being hit the hardest. Further, the study also analyzed the impacts of lockdowns/restrictions imposed by the economies to contain the 2019-nCoV outbreak. This study evidences that early lockdowns/restrictions imposed by the nations have yielded positive results in containing the spread of the novel coronavirus, thus, rebuilding the investor’s confidence and sharp reversal in the stock market returns. The statistical results establish a high and moderate negative correlation between the cumulative abnormal returns (CARs) and the cumulative cases and deaths both country-wise and that of the world indicating that the cross-country variation in the evolution of cases and fatality rates led to such stock market reactions impacting the market sentiments and anticipation for the future.
Project description:•I investigate the stock market's reaction to coronavirus news in the top six most affected countries by the pandemic.•The fake news exerts a negative nonlinear influence on the inferior and the middle quantiles throughout the distribution of returns.•The media coverage leads to a decrease in returns across middle and superior quantiles and has no effects on the inferior ones.•During COVID19 turmoil superior quantiles of returns distribution exhibit negative dependence on past performances, while inferior and middle quantiles are not affected by this phenomenon.•The gold return has a positive correlation with the stock markets, which amplifies during extreme bearish and bullish periods indicating that it does not behave as a "Safe Havens" asset.
Project description:Social media are increasingly reflecting and influencing behavior of other complex systems. In this paper we investigate the relations between a well-known micro-blogging platform Twitter and financial markets. In particular, we consider, in a period of 15 months, the Twitter volume and sentiment about the 30 stock companies that form the Dow Jones Industrial Average (DJIA) index. We find a relatively low Pearson correlation and Granger causality between the corresponding time series over the entire time period. However, we find a significant dependence between the Twitter sentiment and abnormal returns during the peaks of Twitter volume. This is valid not only for the expected Twitter volume peaks (e.g., quarterly announcements), but also for peaks corresponding to less obvious events. We formalize the procedure by adapting the well-known "event study" from economics and finance to the analysis of Twitter data. The procedure allows to automatically identify events as Twitter volume peaks, to compute the prevailing sentiment (positive or negative) expressed in tweets at these peaks, and finally to apply the "event study" methodology to relate them to stock returns. We show that sentiment polarity of Twitter peaks implies the direction of cumulative abnormal returns. The amount of cumulative abnormal returns is relatively low (about 1-2%), but the dependence is statistically significant for several days after the events.
Project description:Graphical abstract In this paper, we examine the stock markets’ response to the COVID-19 pandemic. Using daily COVID-19 confirmed cases and deaths and stock market returns data from 64 countries over the period January 22, 2020 to April 17, 2020, we find that stock markets responded negatively to the growth in COVID-19 confirmed cases. That is, stock market returns declined as the number of confirmed cases increased. We further find that stock markets reacted more proactively to the growth in number of confirmed cases as compared to the growth in number of deaths. Our analysis also suggests negative market reaction was strong during early days of confirmed cases and then between 40 and 60 days after the initial confirmed cases. Overall, our results suggest that stock markets quickly respond to COVID-19 pandemic and this response varies over time depending on the stage of outbreak.
Project description:This study investigates the impact of COVID-19 pandemic on the microstructure of US equity markets. In particular, we explain the liquidity and volatility dynamics via indexes that capture multiple dimensions of the pandemic. Our results suggest that increases in confirmed cases and deaths due to coronavirus are associated with a significant increase in market illiquidity and volatility. Similarly, declining sentiment and the implementations of restrictions and lockdowns contribute to the deterioration of liquidity and stability of markets.
Project description:For biopharmaceutical companies, investments in research and development are risky, and the results from clinical trials are key inflection points in the process. Few studies have explored how and to what extent the public equity market values clinical trial results.Our study dataset matched announcements of clinical trial results for investigational compounds from January 2011 to May 2013 with daily stock market returns of large United States-listed pharmaceutical and biotechnology companies. Event study methodology was used to examine the relationship between clinical research events and changes in stock returns.We identified public announcements for clinical trials of 24 investigational compounds, including 16 (67%) positive and 8 (33%) negative events. The majority of announcements were for Phase 3 clinical trials (N = 13, 54%), and for oncologic (N = 7, 29%) and neurologic (N = 6, 24%) indications. The median cumulative abnormal returns on the day of the announcement were 0.8% (95% confidence interval [CI]: -2.3, 13.4%; P = 0.02) for positive events and -2.0% (95% CI: -9.1, 0.7%; P = 0.04) for negative events, with statistically significant differences from zero. In the day immediately following the announcement, firms with positive events were associated with stock price corrections, with median cumulative abnormal returns falling to 0.4% (95% CI: -3.8, 12.3%; P = 0.33). For firms with negative announcements, the median cumulative abnormal returns were -1.7% (95% CI: -9.5, 1.0%; P = 0.03), and remained significantly negative over the two day event window. The magnitude of abnormal returns did not differ statistically by indication, by trial phase, or between biotechnology and pharmaceutical firms.The release of clinical trial results is an economically significant event and has meaningful effects on market value for large biopharmaceutical companies. Stock return underperformance due to negative events is greater in magnitude and persists longer than abnormal returns due to positive events, suggesting asymmetric market reactions.
Project description:This paper examines the linkages in financial markets during coronavirus disease 2019 (COVID-19) pandemic outbreak. For this purpose, daily stock market returns were used over the period of December 31, 2019-April 20, 2020 for the following economies: USA, Spain, Italy, France, Germany, UK, China, and Romania. The study applied the autoregressive distributed lag (ARDL) model to explore whether the Romanian stock market is impacted by the crisis generated by novel coronavirus. Granger causality was employed to investigate the causalities among COVID-19 and stock market returns, as well as between pandemic measures and several commodities. The outcomes of the ARDL approach failed to find evidence towards the impact of Chinese COVID-19 records on the Romanian financial market, neither in the short-term, nor in the long-term. On the other hand, our quantitative approach reveals a negative effect of the new deaths' cases from Italy on the 10-year Romanian bond yield both in the short-run and long-run. The econometric research provide evidence that Romanian 10-year government bond is more sensitive to the news related to COVID-19 than the index of the Bucharest Stock Exchange. Granger causality analysis reveals causal associations between selected stock market returns and Philadelphia Gold/Silver Index.
Project description:This paper uncovers a new finding of sustainable cross-sectional variations in stock returns explained by mood fluctuations across the days of the week. Long/short leg of illiquid anomaly returns are extensively related to the days of the week, and the magnitude of excess returns is also striking [Long leg refers to portfolio deciles that earn higher excess returns. Historical evidence suggests that more illiquid stock earn higher excess returns (Amihud, 2002; Corwin and Schultz, 2012)]. The speculative leg of illiquid anomalies is the long leg (Birru, 2018) [The speculative leg falls into the long leg of anomaly because more illiquid stocks are sensitive to investor sentiment (Birru, 2018)]. Therefore, the long (speculative) leg experiences more sustainable high returns on Friday than the short (non-speculative) leg. At the same time, relatively higher long (speculative) leg returns were witnessed on Friday than Monday with a greater magnitude difference. These cross-sectional variations in illiquid stocks on specific days are consistent with the explanation of the limit to arbitrage. The observed variations in cross-sectional returns are sustained and consistent with plenty of evidence from psychology research regarding the low mood on Monday and high mood on Friday.
Project description:The lockdown response to COVID-19 has resulted in an unprecedented reduction in global economic activity and associated air pollutant levels, especially from a decline in land transportation. We utilized a network of >10,000 air quality stations distributed over 34 countries during lockdown dates up until 15 May 2020 to obtain lockdown related anomalies for nitrogen dioxide, ozone and particulate matter smaller than 2.5 ?m in diameter (PM2.5). Pollutant anomalies were related to short-term health outcomes using empirical exposure-response functions. We estimate that there were a net total of 49,900 (11,000 to 90,000; 95% confidence interval) excess deaths and 89,000 (64,700 to 107,000) pediatric asthma emergency room visits avoided during lockdowns. In China and India alone, the PM2.5-related avoided excess mortality was 19,600 (15,300 to 24,000) and 30,500 (5,700 to 68,000), respectively. While the state of COVID-19 imposed lockdown is not sustainable, these findings illustrate the potential health benefits gained by reducing "business as usual" air pollutant emissions from economic activities primarily through finding alternative transportation solutions.