Stock Market Response Research Articles

Assessing the Impact of the COVID-19 Pandemic on the Saudi Stock Market’s Performance and Sustainability

The research investigates the immediate impact of the COVID-19 pandemic on the Saudi Stock Exchange (Tadawul) by analyzing the Tadawul All Share Index (TASI). Relying on a robust quantitative methodology, the study involved de-seasonalizing daily TASI 'Close' values using a 7-day moving average and employing ARIMA modeling to examine time-series characteristics for periods before and after the first reported case of COVID-19 in Saudi Arabia on March 2, 2020. The study spanned 115 days, with 56 days before and 59 days after the outbreak, resulting in a total of 115 observations. Advanced statistical tests, including a two-sample t-test and effect size calculation (Cohen's d), were conducted to statistically validate the differences in market performance. The findings revealed a significant decrease in TASI performance post-COVID-19, with increased market volatility. This data aligns with global observations of market disruptions during the pandemic and contributes to the understanding of crisis-induced market behaviors. Finally, the obtained results offer valuable insights into the complexities of stock market responses to global health emergencies while further underscoring the importance of considering external factors in market dynamics.
 Keywords: Stock market; COVID-19; financial market; performance; Tadawul; mortality; Saudi Arabia

Stock Market Response to Quantitative Easing: Evidence from the Novel Rolling Windows Nonparametric Causality-in-Quantiles Approach

Stock Market Response to Quantitative Easing: Evidence from the Novel Rolling Windows Nonparametric Causality-in-Quantiles Approach

Do carbon neutrality initiatives affect the shareholder value of firms? Evidence from China

This study tests the impact of carbon neutrality initiatives on shareholder value and explores how equity returns achieved as a result of carbon neutrality vary across operating environments. Based on 226 carbon neutrality announcements made between 2017 and 2021, we conducted an event study to estimate the impact of carbon neutrality initiatives on Chinese firms' shareholder value. Under the opportunity-motivation-ability (OMA) framework, we further analyzed the heterogeneous effects of distinctive firm characteristics (social rating and firm size), in which carbon neutrality announcements represented opportunity, social rating represented motivation, and firm size represented ability. We further demonstrated how the announcement characteristics and industry differences affected stock market responses. The results indicate that carbon neutrality initiatives have a significant average abnormal return of 0.99% on the announcement date and a positive long-term impact on shareholder value. This equity return is more pronounced for smaller firms with higher social ratings, and the stock market reacts less positively to firms that announce carbon neutrality initiatives in social responsibility reports. The stock market does not react strongly to manufacturing firms’ carbon neutrality initiatives. The study provides some important insights toward the CSR-firm performance debate by providing a new measurement of CSR (i.e. carbon neutrality initiative) and examining the relation from an OMA perspective and looking into some contingency factors.

Has the COVID-19 Pandemic Led to a Switch in the Volatility of Biopharmaceutical Companies?

Biopharmaceutical companies are critical in developing vaccines, treatments, and diagnostics for COVID-19. Thus, understanding the contagion effects of their stock market can have important economic implications, especially in the context of global financial markets. Due to the COVID-19 pandemic, biopharmaceutical companies’ stock markets may have experienced sudden volatility and risk changes, which may have had spillover effects on other sectors and markets. Policymakers can take pre-emptive measures to stabilize financial markets. Analyzing the contagion effects makes it even more relevant to analyze the stock market response of four leading pharmaceutical companies that either developed vaccines against COVID-19 or drugs that help to fight the virus, namely, Pfizer, AbbVie Inc., Sanofi, and Bristol Myers Squibb. The analysis considers two periods, before and during the COVID-19 crisis, and considers the influence of the market volatility and technological market index. In order to capture the contagion effects, DCC-GARCH models have been applied, which estimate time-varying correlation coefficients using a multivariate GARCH framework, allowing for the modeling of time-varying volatility and correlations in financial returns. The results reveal the impact of market volatility on the returns of all four pharmaceutical companies. Additionally, a contagion effect between all four companies, the technological market, and market volatility was observed during the COVID-19 period.

COVID-19 Pandemic and Stock Market Response: The Role of COVID-induced Fear, Investor Attention, and Firm-specific Characteristics

The study examines the reaction of S&P BSE 500 companies to the outbreak of the 2019 novel coronavirus (COVID-19). The impact of COVID-19 induced fear of volatility index (VIX) on stock market returns and the role of pre-pandemic firm-specific characteristics in intensifying/reducing the effect of fear on stock returns are analysed. Event study methodology and panel data approach with firm and industry-time fixed effects are employed. The results show fear of VIX plays a significant role in the downfall and subsequent recovery of the stock market. It is witnessed the role of pre-pandemic firm- specific characteristics is heterogeneous in intensifying/reducing the effect of fear on stock returns. Investor attention (Google search volume) and the growth of COVID-19 cases are also crucial to the stock market movements during the study period.

Stock Market Response to the Russia-Ukraine War: Evidence from an Emerging Market

This study examines the role of financial factors contributing to firms’ resilience during the Russia-Ukraine war. Event study results show a significant adverse reaction, which started before the official war announcement and grew over time. Further, cross-sectional analyses uncover that the negative effect is mitigated for larger and more profitable firms but amplified for high market-cap firms with high cash and debt-holding; both effects are more pronounced for non-financial companies. This study contributes by exploring Turkey as a unique emerging market setting due to its significant geopolitical position, strategic trade, and business partnership with the European Union and Russia.

Stock market evidence on the international transmission channels of US monetary policy surprises

We reveal the economic sources of the stock market responses of 40 countries to US monetary policy surprises by decomposing stock market returns into components reflecting investors’ revisions in expectations (news) about future cash flows and different components of discount rates. US monetary policy surprises have persistent effects on foreign stock markets because they primarily constitute cash flow news. This finding pertains to different measures of the surprises. The liquidity of stock markets and the perceived country risk affect the sensitivities of unexpected stock market returns to the US monetary policy surprises while other country characteristics, e.g., the exchange rate regime, have no effect.

Stock market response to Covid-19, containment measures and stabilization policies—The case of Europe

Policymakers imposed constraints on public life in order to contain the Covid-19 pandemic. At the same time, fiscal, monetary and macroprudential policy implemented a large range of expansionary measures to limit the economic consequences of the pandemic and stimulate the recovery. In this paper, we assess the response of the equity market as a high-frequency indicator of economic activity to containment and stabilization policies for 29 European economies. We construct indicators of containment and stabilization policies and estimate a range of panel VAR models. The main results are threefold: First, we find that stock markets are highly responsive to containment and stabilization policies. We show that domestic fiscal policy, macroprudential policy as well as monetary policy support the recovery as reflected in the stock market. Second, expansionary fiscal policy conducted at the European level reduces rather raises stock prices. Third, we estimate the model over subsamples and show that the counter-intuitive stock market response to EU policies is driven by the responses in medium- and high-debt countries. These countries’ stock markets are also particularly susceptible to monetary policy announcements.

Stock market responses to COVID-19: The behaviors of mean reversion, dependence and persistence

We examine stock market responses during the COVID-19 pandemic period using fractional integration techniques. The evidence suggests that stock markets generally follow a synchronized movement before and the stages of the pandemic shocks. We find while mean reversion significantly declines, the degree of persistence and dependence has been increased in the majority of the stock market indices in whole sample analysis covering the period of August 02, 2019 and July 09, 2020. This outcome implies increasing integration and possibly declining benefits of diversification for the global stock portfolio management.

The Effect of Economic Growth Volatility on Selected Industries in Tehran Stock Exchange

The main purpose of this study is to investigate the effects of economic growth rate shock on the selected industries value in the Tehran Stock Exchange; For this purpose, in the present study, the effects of economic growth rate shock were investigated by applying the time-varying parameter factor-augmented vector autoregressive model (TVP-FAVAR) and using quarterly data during the period (2011-2018).The results show that the response of different industries value to economic growth rate shock has been different; Also, this response has been different for each industry over time, which highlights the need for a TVP approach. Also, by entering the economic growth rate impulse (as much as one standard deviation), it was found that the stock market response to this impulse is associated with a time lag and the effects of this variable appear after several periods on the selected industries value. As the results of the research show, even in the years when we have had a negative economic growth rate, the response of some industries' value has been completely opposite to the variable direction of economic growth rate; One of the reasons for this subject is the low quality of economic growth rate in the country.

Stock market response to the statement on the purpose of a corporation: A vindication of stakeholder theory

AbstractResearch Question/IssueOn August 19, 2019, the Business Roundtable (2019) released a statement signed by 181 chief executive officers (CEOs) of well‐known US corporations, in which they pledged “a fundamental commitment” to “deliver value to all” stakeholders. This study examines the stock market reaction to this new statement on the purpose of a corporation.Research Findings/InsightsBased on a sample of 163 publicly listed companies that signed the pledge, the results show that investors react positively to a firm's pledge in the days surrounding the statement release. The consensus among stock market investors was robust, characterized by the low volatility in the share price post‐announcement date. The decision by these companies, though intended to maximize the wealth of all stakeholders, rather than shareholders alone, carries an opportunity cost. Specifically, a post‐announcement decline in share buybacks by pledge firms relative to control firms is observed, though investors embracing stakeholder theory appear undeterred by the reduction in distributions.Theoretical/Academic ImplicationsThis study provides empirical support that, in the evolving business environment, companies must emphasize issues that concern customers, employees, non‐governmental organizations (NGOs), and the government. Failure to prioritize these issues may engender public backlash, especially in the age of social media. However, the attention to stakeholders is compatible with the focus on shareholder performance. Performance suffers when customers leave, workers feel dissatisfied, NGOs call for boycotts, and governments levy fines. Corporations seeking to increase shareholder wealth will need to fully embrace stakeholder concerns.Practitioner/Policy ImplicationsThis study shows that adopting a stakeholder perspective unlocked value that would not have been achieved had the focus remained on shareholder primacy. The excess values may derive from greater customer loyalty, improved employee motivation, better supplier relations, supportive financiers, maximizing revenue, minimizing costs, and/or yielding higher profits. Shareholders anticipate greater long‐term value from companies emphasizing employees, communities, supply chain, financiers, and shareholders.

Boosting Foreign Investment: The Role of Certification of Corporate Governance

ABSTRACTThis paper studies the economic consequences of certification of corporate governance practices. For identification, we exploit a recent cross‐country initiative by a coalition of key institutions in Southeast Asia; the periodic publication of a “Top List” of companies in the region selected based on an independent assessment of corporate governance practices. Our results suggest that being included in the list induces an increase in foreign investment and changes in corporate governance practices. The announcement of the Top List elicits a positive stock market response among constituents and is followed by higher accounting performance. Overall, the evidence suggests that the certification of governance practices is a meaningful tool to boost foreign investment.

The Stock and Option Market Response to Negative ESG News

The Stock and Option Market Response to Negative ESG News

Measuring Response of Stock Market to Central Bank Independence Shock

This paper examines the responses of stock traded and economic activity in relation to central bank independence shocks. The analysis is based on a panel Vector Autoregressive estimation covering 25 developing countries for a quarterly period between 1990 Q1 and 2021 Q4. Panel VAR estimation is known to be potentially biased in a dynamic panel data model if the coefficient on the endogenous variables differs across countries. To test the pooling assumption of the model, this paper applies the Chow and Roy-Zellner tests. The results establish that the models contain the heterogeneity among samples; thus, mean-group estimation for panel VAR is performed as a solution for heterogeneity problem. The results show that there is a delayed effect of CBI to increase stock traded. This demonstrates that CBI takes around six quarters to strengthen the financial market. By dividing the sample into two groups, we find that CBI has a different effect on stock traded for countries that have high and low stock traded.

Inelastic Stock Market Response to Capital Flows, Conservation of Money, and the Paradox of Investing

Inelastic Stock Market Response to Capital Flows, Conservation of Money, and the Paradox of Investing

Stock market response to the COVID-19 lockdown: the case of Dow Jones, CAC 40, DAX and FTSE 100

Stock market response to the COVID-19 lockdown: the case of Dow Jones, CAC 40, DAX and FTSE 100

Stock market response to the COVID-19 lockdown: the case of Dow Jones, CAC 40, DAX and FTSE 100

Stock market response to the COVID-19 lockdown: the case of Dow Jones, CAC 40, DAX and FTSE 100

Stock Market Response to Investment in Cryptocurrencies in United State: A Dynamic ARDL Simulation Approach

Stock Market Response to Investment in Cryptocurrencies in United State: A Dynamic ARDL Simulation Approach

Does capital bear the burden of local corporate taxes? Evidence from Germany

Exploiting the German 2008 tax reform we employ an event study design to assess the effects of local corporate taxes on stock prices. We match firms to the local tax rates at their respective headquarters and analyze the differential stock market responses to the reform decision. We find that firms which are located in high tax jurisdictions and therefore face a possible high tax reduction significantly outperform firms in low tax jurisdictions during the decision-making process. The results indicate that firm owners partially bear the burden of local corporate taxes.

ESG 논란과 주식 수익률: 자연어 처리의 활용

This study examines whether corporate value reacts to news and articles disclosing Environmental, Social, and Governance (ESG) controversies by analyzing the daily stock market responses. Based on deep learning techniques, we collect and utilize a large-scale ESG controversy article dataset for the 10-year-long period from 2012 to 2021. By refining the big data and classifying the ESG articles using KoBERT, a natural language processing model, we investigate how the stock market reacts differently depending on the type of ESG controversy issues. We find that stock prices tend to decline in response to the negative news about ESG controversies. We also find that the stock market responds to the news more intensively as the news coverage becomes greater. The financial performance of companies such as operating profit to assets and credit rating affects the extent to which the ESG controversy changes the corporate value in the short term. Under the interdisciplinary framework, our empirical analyses and findings yield insight on how to analyze the news articles containing ESG controversies and broaden our understanding of the influence of ESG controversies on domestic companies.