Evaluating the responsiveness of Caribbean stock markets – The case of COVID-19

Abstract

The Caribbean stock markets have been largely ignored by scholars, partly due to the conventional view of a weak and inefficient system, and low integration to the world financial system. This paper examines the major announcements related to COVID-19 as exogenous shocks and their impacts on stock market returns in the two most developed stock markets in the Caribbean region. Using the standard event methodology and a dynamic difference in differences model, we confirm a significant decline in stock returns in response to negative announcements of COVID-19-related news. Other positive news such as the announcements of re-opening of the economy and vaccine had a positive impact on stock returns. The Jamaica stock markets are likely to be weakly efficient and exhibit low responsiveness to major COVID-19-related events and news. Most sectors in the Caribbean economy experienced significant losses to stock returns resulting from these shocks. The banking, conglomerates, and property sectors continued to be subdued in the face of continued uncertainty and unpredictability of the overall impact of COVID-19. The energy and communication sectors seemed to be either the most resilient or most asymmetrically informed sectors as they are found not to be affected by COVID-19-related announcements. The manufacturing, property, and non-banking sectors are found to recover quickly from the shocks. Our analysis provides further insight in terms of portfolio investment strategies in the Caribbean region.