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Sustainability of Stock Market against COVID-19 Pandemic

Author

Listed:
  • Chin, Lee
  • Foo, Yong Seong
  • Chen, Kong San
  • TAGHIZADEH-HESARY, FARHAD
  • LIN, WOON LEONG

Abstract

This study explored the sustainability of the stock market against the COVID-19 pandemic. The impacts of confirmed COVID-19 cases, COVID-19 deaths, and Movement Control Order (MCO) length on the stock market were examined. The Generalized Method of Moments (GMM) estimator was employed to analyze 57 countries’ weekly data from November 4th 2019 to July 5th 2020. The findings showed that the growth in confirmed COVID-19 cases has a significant negative effect on stock market returns, while the growth in COVID-19 deaths has a negative yet statistically insignificant influence on stock market returns. This study also found a non-linear inverted U-shaped relationship between the MCO period and stock market returns, implying that though the MCO has initial positive influences on the stock market, it negatively impacts the stock market after 5.7 weeks. Thus, this study argues that policy responses to the COVID-19 pandemic provide the most compelling explanation for its unprecedented impact on the sustainability of the stock market. Governments should therefore implement a partial lockdown to avoid deterioration of the national economy. Furthermore, government policies and plans to control the COVID-19 epidemic as well as economic stimulus packages to kickstart the economy play crucial roles in boosting economic growth and revitalizing the stock market.

Suggested Citation

  • Chin, Lee & Foo, Yong Seong & Chen, Kong San & TAGHIZADEH-HESARY, FARHAD & LIN, WOON LEONG, 2022. "Sustainability of Stock Market against COVID-19 Pandemic," MPRA Paper 121422, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121422
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    References listed on IDEAS

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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