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Impact of COVID-19 on the Stock Market by Industrial Sector in Chile: An Adverse Overreaction

Author

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  • Pedro Antonio González

    (Department of Business Administration, University of Lleida, C/Jaume II, 73, 25001 Lleida, Spain)

  • José Luis Gallizo

    (Department of Business Administration, University of Lleida, C/Jaume II, 73, 25001 Lleida, Spain)

Abstract

This paper studies the reaction of share prices in the Chilean securities market at the sectoral level to the arrival of COVID-19 in the country. The following question is answered: Did the Chilean market act efficiently before the arrival of COVID-19? To answer this question, an event study using a 10-day investment return window was applied to the industrial sectors that make up the IPSA (Selective Stock Price Index). To obtain the abnormal returns (AR) and cumulative abnormal returns (CAR) for the event window, three models were used: (1) adjusted average return, (2) adjusted market return, and (3) the market model. The results of the study show an overreaction to market losses, except in the utilities industry, causing greater losses after the event, which shows that information is slow to be incorporated in the previous stage and suggests that the prices of the assets do not reflect all the information available in the market. A significant finding is that the Chilean stock market responded inefficiently in the face of the arrival of the pandemic. This information is useful for investors in the formation of portfolios and/or investment strategies with a view to the long term.

Suggested Citation

  • Pedro Antonio González & José Luis Gallizo, 2021. "Impact of COVID-19 on the Stock Market by Industrial Sector in Chile: An Adverse Overreaction," JRFM, MDPI, vol. 14(11), pages 1-24, November.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:11:p:548-:d:677349
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    References listed on IDEAS

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    Cited by:

    1. Maran, Raluca, 2022. "Reaction of the Philippine stock market to domestic monetary policy surprises: an event study approach," MPRA Paper 114855, University Library of Munich, Germany.

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