Abstract
The unprecedented outbreak of COVID-19 has affected every aspect of the human life, be it health, social, or economic dimensions. The anxiety and uncertainty wobbled the economies of affected countries worldwide. This study attempts to quantify the impact of COVID-19 on the performance of major stock markets of G-7 nations vis-à-vis BRICS nations. An event study methodology is employed to capture the effect of the systematic event in the form of Buy and Hold Abnormal Returns (BHAR) and Average Buy and Hold Abnormal Returns (ABHAR). The study considers a 90-day observation window, consisting of six sub-event windows after the COVID-19 news up-doves the world, and 120 days prior to the selected event date to estimate average expected returns. BHAR values in the four event windows are statistically significant, covering stock markets from panic and nosedive to their correction and recovery. ABHAR values reported are significantly negative in the event window ranging from –0.15% to –38.43% for G-7 and –0.06% to –37.12% for BRICS nations. Despite similar ABHAR trends, the BHAR values and correlation matrix exhibit a diverse reaction in BRICS nations compared to the highly synchronized reaction in the G-7 group of nations in the COVID period.
Highlights
The outbreak of the novel contagious coronavirus has a devastating impact on the health and financial prosperity of the human habitat across borders
This study aims to quantify and compare the impact of COVID-19 on the stock markets of G-7 and BRICS as individual countries and economic groups
The choice of the event study helps to identify the impact of COVID-19 at both the country and group level, like Buy and Hold Abnormal Returns (BHAR) and ABHAR, respectively
Summary
The outbreak of the novel contagious coronavirus has a devastating impact on the health and financial prosperity of the human habitat across borders. All major stock markets nosedived, creating shivers in the nerves of global investors, and the event was claimed as the second-worst global economic crisis of the century after the recession of World War II (World bank, 2020). The rapid global spread of the disease in March 2020 led the governments of affected countries to impose a complete lockdown and travel ban to contain the virus These decisions have added to the panic and further slumped the economic activities concurrence on the downward risk movement of stock markets over the globe (Goodell, 2020). Most of global stock markets overreacted and followed a highly volatile movement in March 2020, responding to the spread of COVID-19 Due to such panic selling and falling stock index values, in March and April 2020, the markets witnessed trading halts and multiple circuit breaks. To economic events such as GST implementation and demonetization in India (Mishra et al, 2020)
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