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Do financial and non-financial stocks hedge against lockdown in Covid-19? An event study analysis

Author

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  • Ran Tao
  • Chi-Wei Su
  • Tanzeela Yaqoob
  • Mir Hammal

Abstract

The novel Covid-19 virus has changed the dynamics of ‘flight to safety’ investment for various economies. Thus, the hedging ability of the stocks must be revisited in the scenario of this pandemic. For this purpose, specifically understanding the importance of a semi-strong form of an efficient market hypothesis is important. This was to observe the speed at which the markets react to the news announcement, and how rapidly they absorb new information to regain thier position in the market. Hence, this study conducts an event study analysis on Pakistan’s emerging market to detect the financial and non-financial stock price reactions towards the lockdown announcement, following the spread of Covid-19 in Pakistan. The daily data on the KSE-100 index for thirty different industries, comprising of ninety firms, spanning from December 12, 2019, till June 7, 2020, was collected and analyzed. The abnormal returns were recorded to be at around 21 [−10. +10] and 41 days [−20, +20] event window, around the day of the lockdown announcement. These abnormal returns were obtained through the market model regression. The data collected implied that most of the industries were stable and behaved well before the event day, while the affected sectors recovered fairly quickly. Therefore, it has been affirmed that Pakistan’s equity portfolios are informationally efficient, and can benefit the investors during a pandemic.

Suggested Citation

  • Ran Tao & Chi-Wei Su & Tanzeela Yaqoob & Mir Hammal, 2022. "Do financial and non-financial stocks hedge against lockdown in Covid-19? An event study analysis," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 2405-2426, December.
    • Handle: RePEc:taf:reroxx:v:35:y:2022:i:1:p:2405-2426
    DOI: 10.1080/1331677X.2021.1948881
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    Cited by:

    1. Sattar Khan & Yasir Kamal & Muhammad Abbas & Shahid Hussain, 2022. "Board of directors and earnings manipulation: evidence from regulatory change," Future Business Journal, Springer, vol. 8(1), pages 1-22, December.
    2. Muhammad Danial & Nadia Iftikhar & Syed Quaid Ali Shah, 2023. "Analyzing the Performance of Pakistan Equity Mutual Funds Using Multifactor Models: Pre-COVID Analysis," Business Management and Strategy, Macrothink Institute, vol. 14(2), pages 296-328, December.

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