COVID-19 and the Financial Markets’ Volatility and Returns

Abstract

The study is undertaken to investigate the impact of COVID-19 on the Financial Markets ‘Volatility from the period April 2020 to June 2020. Ten countries namely Pakistan, USA, China, UAE, UK, Spain, France, South Korea, Switzerland, and the Netherlands were selected. Our daily data comes from the WHO situation reports (COVID-19 statistics) and Pakistan, USA, UK, UAE, China, France, Netherlands, Switzerland’s, Spain, and South Korea Stock Exchange Indices database, respectively. We use the KSE-100, S&P 500, FTSE 100, SE 50, AEX, ADX, IBEX, FCHI, KRX, and SSMI 3-month realized volatility index as a proxy for the Pakistan financial markets’ volatility. We test a simple Ordinary Least Squares (OLS) regression investigating the new coronavirus impact on the financial volatility and we use a stepwise procedure. Independent variables included Global COVID-19 Confirm case, Fatality, Country COVID-19 new case, Country Fatality, and dependent variable included country’s market volatility, and market returns. Control variables of the country’s Exchange and Interest rate were also included. The study design is descriptive and analytical using the quantitative method with the application of Eviews. The results suggested that the Global COVID new case seems to have a significant negative impact on the country's market volatility, however, global fatality seems to increase market volatility. Country-specific cases seem to negatively affect that country's volatility however, country-specific fatality doesn’t seem to be significantly impacting volatility. Apart from that, interest and exchange rates seem to increase the volatility. However, the effect of these variables on returns remained insignificant. The findings of this research provide policy implications to investors and policymakers indicating that pandemics can significantly perpetrate business economics.