Abstract
In this study, we investigated the impact of the first wave of the COVID-19 pandemic on various sectors of the Australian stock market. Market capitalization and equally weighted indices were formed for eleven Australian sectors to examine the influence of the pandemic on them. First, we examined the financial contagion between the Chinese stock market and Australian sector indices through the dynamic conditional correlation fractionally integrated generalized autoregressive conditional heteroskedasticity (DCC-FIGARCH) model. We found high time-varying correlations between the Chinese stock market and most of the Australian sector indices, with the financial, health care, information technology, and utility sectors displaying a decrease in co-movements during the pandemic. The Modified Iterative Cumulative Sum of Squares (MICSS) analysis results indicated the presence of structural breaks in the volatilities of most of the sector indices around the end of February 2020, but consumer staples, industry, information technology and real estate indices did not display any break. Markov regime-switching regression analysis depicted that the pandemic has mainly affected three sectors: consumer staples, industry, and real estate. When we considered the firm size, we found that smaller companies in the energy sector exhibited gradual deterioration, whereas small firms in the consumer staples sector experienced the largest positive impact from the pandemic.
Highlights
IntroductionThe COVID-19 pandemic was first identified in late 2019
In the empirical analysis section of the study, we investigated the financial contagion between the Chinese stock market and Australian Stock market, examined the structural breaks in each sector indices’ volatilities, and tested the influence of the pandemic on these indices
As the crisis emerged in China, first, we examined the financial contagion between the Chinese stock market and the Australian equity market
Summary
The COVID-19 pandemic was first identified in late 2019. In 2020, it spread around the globe, with the World Health Organization (WHO) identifying the first case on 31. On 11 March 2020, the WHO classified the COVID-19 virus outbreak as a global pandemic. As the pandemic has spread across the globe, the number of deaths and confirmed cases has soared. Most the countries of Earth have implemented various containment measures, such as social distancing and lockdowns, in an effort to mitigate the pandemic’s lethal impact. The top 10 countries based on GDP (the U.S, China, Japan, Germany, India, the U.K., France, Italy, Brazil, and Canada) have accounted for 60% of total cases as of 15 August 2020, which in turn halted many economic and financial activities across the globe (Chaudhry et al 2020)
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