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COVID-19 and financial market response in China: Micro evidence and possible mechanisms

Author

Listed:
  • Zhan Wang
  • Zhongwen Zhang
  • Qiong Zhang
  • Jieying Gao
  • Weinan Lin

Abstract

This paper uses event study based on the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model to study the impact of the COVID-19 outbreak on China’s financial market. It finds that the pandemic had an overall significant and negative impact on the stock prices of firms listed on SSE, SZSE and ChiNext. However, such impact appeared to be heterogeneous across industries, affecting listed firms in industries such as pharmaceutical and telecommunications positively, but those in services industries such as accommodation, catering, and commercial services negatively. Apparently, a crisis for some had been an opportunity for others. In addition, this paper seeks to understand the micro mechanism behind the heterogeneity of pandemic shock from the perspective of firms’ financial position. It finds that listed firms with higher debt level were hit harder, whereas those with more net cash flow had displayed higher resilience against the blow of the pandemic. However, the opposite pattern is found among those listed on ChiNext and in industries severely devastated by the pandemic. These findings have policy implications in terms of preventing systemic financial risks and facilitating recovery during pandemic-induced economic downturns. It also helps investor adjust investment strategies, hedge against risks, and secure gains when the market conditions in general are unfavorable.

Suggested Citation

  • Zhan Wang & Zhongwen Zhang & Qiong Zhang & Jieying Gao & Weinan Lin, 2021. "COVID-19 and financial market response in China: Micro evidence and possible mechanisms," PLOS ONE, Public Library of Science, vol. 16(9), pages 1-23, September.
    • Handle: RePEc:plo:pone00:0256879
    DOI: 10.1371/journal.pone.0256879
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    References listed on IDEAS

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    Cited by:

    1. Zhou, Siyu & Amin Noordin, Bany Ariffin & Tunde, Matemilola Bolaji & Chen, Yuhua & Xu, Keming, 2025. "Working capital management and corporate profitability: the moderating role of foreign ownership," Finance Research Letters, Elsevier, vol. 81(C).
    2. Ho, Ken C. & Gao, Yibo & Gu, Qiying & Yang, Da, 2022. "Covid-19 vaccine approvals and stock market returns: The case of Chinese stocks," Economics Letters, Elsevier, vol. 215(C).

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