A Study on the Impact of the COVID-19 on the Global Stock Markets

Abstract

Purpose - This paper aimed to analyze the impact of the COVID-19 pandemic on the major stock markets including those of Korea, Japan, China, the U.S., U.K. and Germany, following the outbreak of the COVID-19 pandemic in December 2019 that has spread all over the world from Wuhan, China and shaken the global financial markets Design/Methodology/Approach - We used daily data of the stock market index for the period of one year before and 9 months after the date when a pandemic was declared. Comparative analysis between the pre- and post-COVID-19 eras was performed. We applied Granger causality test for identifying whether one stock market data series can forecast another and the GARCH(1,1) model for estimating volatility transmission across the stock markets in review, in addition to the correlation analysis to examine and compare the co-movement among the markets between the preand post-COVID-19 periods. Findings - This paper showed that the correlation among stock markets in the US, the UK and Germany strengthened after the shock compared to before the shock. The results also indicated that a causal relationship in two markets out of six stock markets intensified relative to the post-COVID-19 period. Moreover, volatility transmission after the shock became stronger than before the shock but was different depending on the different markets. Research Implications - The research results have implication for both domestic and international investors in coping effectively with unanticipated shocks to the markets. This paper also can invoke similar research surrounding the impact of the COVID-19 pandemic to the financial markets in Korea.