COVID-19 and Financial Market Reactions: A Cross-Country Analysis of Emerging Economies

This study examines the stock market response to COVID-19 in emerging countries of South Asia and China over the period from 2019 to 2021. It uses event study methodology to analyze CARs (cumulative abnormal returns) during the announcement of three events: the first case report, the first lockdown, and the second lockdown. The estimation windows consist of 110 (-10, -120) days earlier the event date, and the windows of event consist of 6 days after the event’s declaration. We discover that the first reported case has less impact on China and Pakistan’s market returns, while India and Bangladesh show statistically significant and negative effects. The further results reveal that the first lockdown announcement in Pakistan, China, and Bangladesh had an adverse effect on market returns; CAR values are negative and significant, but India findings are not statistically significant due to government policies. However, our findings reveal that the second lockdown in China was statistically significant due to its restriction imposed in February. However, the results in other countries during this phase are not statistically significant, as the level of panic decreases after April. Overall, the pandemic has a significant or adverse impact on returns of stock market in China and other countries, and markets are efficient. This study gives perception to investors in handling risks during worldwide health crises by understanding the associations between pandemic events and market performance.