the stock market and COVID-19
by Dr. Maya Katenova Indeed, the COVID-19 pandemic has had a down turning effect on the stock markets as companies experienced shortage of revenues due to lockdown measures. The COVID-19 pandemic’s effect on the stock market is evident around the world; however, the degree of impact tends to vary from country to country. Baek and et al., (2020) studied the impact of COVID-19 on the U.S. stock market via application of the Markov Switching AR Model. Application of the model enables us to focus on lower as well as higher volatilities in the stock market performance. The analysis included selected economic variables, which had direct relationships with stock market performance in line with machine learning variables. The study included several industries that were utilities, tourism, tobacco, petroleum and natural gas, consumer goods, food production, telecom and broadcasting, business equipment, personal and business services, steel, fabricated products & machinery, electrical equipment, automobiles & trucks, and healthcare. Industries were classified into Panel A and B. As the deviations were obtained, regression analysis was conducted. Overall, it was found that with an increasing total number of infected as well as deaths, the U.S. stock market became riskier. Systematic and idiosyncratic risk in all observed industries have increased. However, industry-level analysis revealed that systematic risk increased in case of defensive industries namely telecommunication and utilities. However, it was lower in case of aggressive industries such as automobiles and business equipment. Analysis of total risk across industries via combining economic variables as well as COVID-related variables demonstrated that stock market performance was more sensitive in case of news on COVID-related deaths as recoveries. Namely, news about the deaths were more influential in comparison with positive news on recoveries (Baek and et al., 2020). Evidence from the Australian stock market revealed that COVID-19 has had an adverse impact on the overall Australian economy as well as stock market performance (Alam and et al., 2020). Nevertheless, negative impact was not evenly distributed among different sectors. It was found that some sectors represented in the Australian stock exchange have become highly vulnerable, while other sectors performed better. Analysis was based on eight different sectors, which included transportation, healthcare, pharmaceuticals, food, real estate, energy, telecommunications, and technology. The metadata analysis was derived from the Australian Securities Exchange (ASX). Specifically, authors analyzed risk-return characteristics on announcement of the events related to COVID-19 outbreak in each country. For instance, sectors including pharmaceuticals, healthcare, and food gained high positive gains when the COVID-19 outbreak was announced on February 27th, 2020. After the announcement and onwards, the aforementioned sectors, in line with telecommunications, exhibited positive returns whereas the transportation industry experienced downturns.
Intelligent Risk - July 2021
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