How does the COVID-19 Affect the Shanghai Composite Index and How does this Affect Investors' Portfolio

Abstract

In the period of COVID-19, Chinese economy were affected negatively so does the financial system since it had the first confirmed case. The article aims to find to what extent does the pandemic affect Shanghai Composite Index in comparison with no virus. ARIMA model is used to estimate prices of the index in the absence of COVD-19. The results show different degree of decreasing prices of the index in comparison of two cases. Some stocks are impacted negatively, while others such as pharmaceutical, education and information technology mitigate the extent of decreasing prices of stock. There a few studies using ARIMA model to predict how Shanghai Composite Index would be influenced in the absence of COVID-19 and compare it with the actual observations. Through this study, the effect of the pandemic on the index can be found, which implies the whole investing environment. Researchers can use this result to compare the effects of the virus on the financial market in absence and presence of the pandemic. Moreover, investors may be aware of timing that the government and dealers take actions to avoid huge decrease of the price of the index. They may have some understanding of when to do bottom hunting to earn profits. Finally, policy makers and investors may know how long the monetary policies takes effect in the market, which is beneficial for future policy uses.