COVID-19: Putting Stock Markets Back on Recovery among the Crude Oil Producing Economies

Abstract

COVID-19 poses an unprecedented threat to components of global business cycles including stock markets, industrial production and employment. This study investigated its impact on stock markets of 24 oil producing COVID-19-hit economies in North America, South America, Europe, Asia, Oceania and Africa. It examined the nature of asymmetry in the business cycles of the sampled countries and the impact of COVID-19 on the asymmetry. Switching regression techniques were estimated with data covering the period from October 1, 2019 to April 14, 2020. The results confirmed the presence of negative asymmetry in stock market cycles in 54.2% of the sampled countries, out of which 38.5%, 46.2% and 15.4% are high, middle and low-middle income countries, respectively. This is significantly connected to the COVID-19 pandemic for 29.2% of the sample. The expected duration of being in the state of low stock market performance, due to COVID-19, reduces with levels of countries’ income, if regimes are dependent. Opposite was observed if regimes are independent. Hence, the negative impact of COVID-19 on stock markets in lower-income countries will linger compared to higher-income countries. Reducing COVID-19-associated risks will go a long way to revive investors’ confidence in the market and help to restart the engine of economic recovery in the sampled countries.