Stock Market Response to the Covid-19 Shock: Lessons for Africa

Abstract

Abstract African stock markets are predominantly underdeveloped. However, the increasing financial openness and dependency on external trade implies that these stocks markets can potentially be impacted by global shocks. We use daily data to investigate the response of a sample of African emerging and developed stock markets to the COVID-19 shock. We use the event-study methodology to estimate the cumulative average abnormal returns before and after the announcement of the COVID-19 pandemic. Our results show that the reaction of active stock markets in Africa mimics that of markets in India and the United Kingdom. The patterns persist at sector-level, when the Johannesburg Stock Exchange is excluded, that while the pharmaceuticals, industrials, mining, and the transport sectors recorded significant abnormal gains, financials, real estate, wholesale, retail, and services lagged behind, and the response of the agricultural was subdued. These results have policy lessons for Africa’s structural transformation process and the recovery of developing markets, which have had a muted response to previous global shocks.