COVID-19 and stock market nexus: evidence from Shanghai Stock Exchange

Abstract

The outbreak of the contagious pandemic Covid-19 has disturbed various economic and business activities across the globe. This has resulted in the declination of cash flows and revenues, which significantly increases the probability of corporate bankruptcies and adversely affects the stock market performance. The current study investigated the Covid-19 and stock market nexus whilst considering the Shanghai Stock Exchange (SSX). Covid-19 active cases and deaths have been considered proxies for the Covid-19 from 1 April 2020 to 30 July 2020. For empirical analysis, this study utilised quantile regression and dynamic ordinary least squares (DOLS). Empirical findings of both quantile regression and DOLS illustrate that both the Covid-19 active cases and deaths significantly decline the SSX closing index. However, the quantile estimates reveal that from lower (0.25) quantile to medium (0.50) to higher (0.75) quantile, the magnitude of these variables is found declining. Moreover, the frequency domain causality test confirmed the unidirectional causal relationship between the study variables, running from Covid-19 cases and deaths to the SSX. The findings are robust, which leads to providing practical policy implications that identified the need to revise health-finance-related policies and financial education to combat such circumstances in the future.