A Note on the Relationship between COVID-19 and Stock Market Return: Evidence from South Asia

Abstract

The transformation of COVID-19 from a regional health crisis in a Chinese city to a global pandemic has caused severe damage not only to the natural and economic lives of human beings but also to the financial markets. The rapidly pervading and daunting consequences of COVID-19 spread have plummeted the stock markets to their lowest levels in many decades, especially in South Asia. This motivated us to investigate the stock markets’ response to the COVID-19 pandemic in four South Asian countries, namely Bangladesh, India, Pakistan, and Sri Lanka. To this end, we collected and analyzed the daily data on COVID-19 spread and stock market return over the period May 28, 2020, to October 01, 2020. Using Dumitrescu and Hurlin panel Granger non-causality test, our empirical results demonstrate that the COVID-19 spread measured through its daily confirmed cases in a country significantly induces stock market return. We cross-validated the results using the pairwise Granger causality test and find the results robust. Our study delineates various policy implications and avenues for future research.