The Covid-19 epidemic currently puts the stock markets and the world economy in a great deal of concern. The biggest catastrophe since World War II was caused by what was thought to be a common illness (Coronavirus: Greatest test, 2020). The World Health Organization (WHO) has been able to legally classify dangerous pandemics as Public Health Emergencies of International Concern (PHEICs) since 2005, if they have the potential to need a globally coordinated response (Strengthening health security, 2005). Six PHEIC have since been declared by the WHO: the swine influenza pandemic H1N1 in 2009, the West African poliovirus and Ebola epidemic in 2014, the Zika virus in 2016, the Ebola outbreak in 2019, and the Covid-19 pandemic in 2020. Because all of these events meet the same predetermined conditions, an uninformed observer may anticipate that investors will respond to each of the PHEIC announcements in a similar manner. A more thorough examination of the data reveals distinct responses to various illnesses.
The literature on the effects of pandemics on the economy is relevant to our study. According to research by Donadelli et al. (2017), investor sentiment influenced by disease-related news and WHO notifications has a major beneficial impact on stock returns for pharmaceutical firms operating in the US. By utilizing historical data dating back to the 14th century, Jordà et al. (2020) show that pandemics have a notable socioeconomic impact that lasts for around 40 years. We also note the research of Abdullah et al. (2020), which suggests that during COVID-19 outbreaks, the number of illnesses and fatalities may be a predictor of stock returns. Investors' reactions to the Covid-19 outbreak and spread were phased, according to Ramelli and Wagner (2020a), who also highlight investor worries about company debt and liquidity. On the other hand, our research focuses on the short-term stock market responses to various PHEIC announcements on a worldwide scale. To the best of our knowledge, this study is the first to use the event study technique to examine all six PHEIC announcements across national boundaries.
Even though every event satisfies the same criteria to be designated as a PHEIC, various illnesses and nations may see possible risks and repercussions differently (Ullah et al., 2019). The announcements of Covid-19 in 2020 and Ebola in 2014 caused notable negative anomalous returns on the announcement days in a comparatively greater number of nations, according to stock market statistics. Despite the fact that the PHEIC announcements were all about the same kind of event, the results imply that investors made distinctions between them. Additionally, because to the virus's continued spread and the travel bans and countermeasures declared by nations worldwide, the negative stock market reactions following the PHEIC release of Covid-19 persisted for at least 30 days. Only in the long-term [0, 30] event window did Singapore's PHEIC declaration of swine influenza result in significantly positive cumulative anomalous returns (Table A6). It is improbable that the PHEIC statements caused any of the two outcomes. So what are the steps to do fundamental analysis? Look for relevant news and articles by reading the company's annual reports. The global response to PHEIC disclosures leads to two primary conclusions. First, given the speed, intensity, and several other aspects of the pandemic, it is likely not surprising that there is no discernible pattern in the market's response to PHEIC releases. As the most significant pandemic globally, COVID-19 stands out, and things are different this time around. Second, the markets did not exhibit any notable reactions over the 30-day event window, with the exception of Covid-19, suggesting that the pandemic had little effect on world markets at this period. According to them, the containment measures and policy reactions provide the most convincing justification for the sharp changes in the stock markets (2020). The Covid-19 epidemic and its worldwide spread demonstrated the devastating impact that illness can have on both society and the economy.
The first goal should always be to save lives, but the consequences of containment measures and social alienation have a significant impact on the state of the world economy. Investors did not respond uniformly to WHO public health risk bulletins, but they did respond differently to different illnesses. It has to be seen how much the perceived severity matches reality and how much the stock market's movements are supported by economic fundamentals. Our research helps decision-makers recognize the various degrees of market reaction severity so they can respond quickly to reduce systemic risk. Therefore, when assessing the true impact of COVID-19 on the equities market, it may be beneficial to move quickly. Our research offers a place to start when recording distinct market responses across events and nations.
Finally, event studies provide an easy method for identifying anomalous market moves. In order to address the exogenous shocks—both internal and external—and heterogeneity present in the event study research, future investigations had to employ sophisticated econometric models. Unexpected external shocks, like a financial crisis or a disease epidemic, can have an impact on economic patterns and abruptly shift market opinion. According to Lee et al. (2002), investors exhibit more pessimistic behaviour during declining market trends, which results in higher revisions in volatility and decreased future excess returns. According to Burns et al. (2012), when the public reacts to news broadcasts, social media, and social interactions with friends and family during the early stages of a crisis, perceived danger and negative emotions frequently increase. In a similar vein, Roszkowski and Davey (2010) record the sharp rise in the public's understanding of the danger associated with investing during the 2008 financial crisis.
You must be logged in to post a comment.