IDEAS home Printed from https://ideas.repec.org/a/gam/jijerp/v17y2020i18p6729-d414041.html
   My bibliography  Save this article

Stock Market Reactions to COVID-19 Pandemic Outbreak: Quantitative Evidence from ARDL Bounds Tests and Granger Causality Analysis

Author

Listed:
  • Ștefan Cristian Gherghina

    (Department of Finance, Bucharest University of Economic Studies, 6 Piata Romana, 010374 Bucharest, Romania)

  • Daniel Ștefan Armeanu

    (Department of Finance, Bucharest University of Economic Studies, 6 Piata Romana, 010374 Bucharest, Romania)

  • Camelia Cătălina Joldeș

    (Department of Finance, Bucharest University of Economic Studies, 6 Piata Romana, 010374 Bucharest, Romania)

Abstract

This paper examines the linkages in financial markets during coronavirus disease 2019 (COVID-19) pandemic outbreak. For this purpose, daily stock market returns were used over the period of December 31, 2019–April 20, 2020 for the following economies: USA, Spain, Italy, France, Germany, UK, China, and Romania. The study applied the autoregressive distributed lag (ARDL) model to explore whether the Romanian stock market is impacted by the crisis generated by novel coronavirus. Granger causality was employed to investigate the causalities among COVID-19 and stock market returns, as well as between pandemic measures and several commodities. The outcomes of the ARDL approach failed to find evidence towards the impact of Chinese COVID-19 records on the Romanian financial market, neither in the short-term, nor in the long-term. On the other hand, our quantitative approach reveals a negative effect of the new deaths’ cases from Italy on the 10-year Romanian bond yield both in the short-run and long-run. The econometric research provide evidence that Romanian 10-year government bond is more sensitive to the news related to COVID-19 than the index of the Bucharest Stock Exchange. Granger causality analysis reveals causal associations between selected stock market returns and Philadelphia Gold/Silver Index.

Suggested Citation

  • Ștefan Cristian Gherghina & Daniel Ștefan Armeanu & Camelia Cătălina Joldeș, 2020. "Stock Market Reactions to COVID-19 Pandemic Outbreak: Quantitative Evidence from ARDL Bounds Tests and Granger Causality Analysis," IJERPH, MDPI, vol. 17(18), pages 1-35, September.
    • Handle: RePEc:gam:jijerp:v:17:y:2020:i:18:p:6729-:d:414041
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1660-4601/17/18/6729/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1660-4601/17/18/6729/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Topcu, Mert & Gulal, Omer Serkan, 2020. "The impact of COVID-19 on emerging stock markets," Finance Research Letters, Elsevier, vol. 36(C).
    2. Mensi, Walid & Sensoy, Ahmet & Vo, Xuan Vinh & Kang, Sang Hoon, 2020. "Impact of COVID-19 outbreak on asymmetric multifractality of gold and oil prices," Resources Policy, Elsevier, vol. 69(C).
    3. Christian M. Hafner, 2020. "The Spread of the Covid-19 Pandemic in Time and Space," IJERPH, MDPI, vol. 17(11), pages 1-13, May.
    4. Stefano Ramelli & Alexander F Wagner, 2020. "Feverish Stock Price Reactions to COVID-19," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 622-655.
    5. Bohdan M. Pavlyshenko, 2020. "Regression Approach for Modeling COVID-19 Spread and its Impact On Stock Market," Papers 2004.01489, arXiv.org.
    6. Li, Haoran & Wan, Xibo & Zhang, Wendong, 2020. "How do Firms Respond to Political Tensions? Evidence from Chinese Food Importers," ISU General Staff Papers 202011250800001118, Iowa State University, Department of Economics.
    7. Zhang, Dayong & Hu, Min & Ji, Qiang, 2020. "Financial markets under the global pandemic of COVID-19," Finance Research Letters, Elsevier, vol. 36(C).
    8. Jesús Manuel Palma-Ruiz & Julen Castillo-Apraiz & Raúl Gómez-Martínez, 2020. "Socially Responsible Investing as a Competitive Strategy for Trading Companies in Times of Upheaval Amid COVID-19: Evidence from Spain," IJFS, MDPI, vol. 8(3), pages 1-13, July.
    9. Albuquerque, Rui & Koskinen, Yrjo & Yang, Shuai & Zhang, Chendi, 2020. "Love in the Time of COVID-19: The Resiliency of Environmental and Social Stocks," CEPR Discussion Papers 14661, C.E.P.R. Discussion Papers.
    10. Lyócsa, Štefan & Baumöhl, Eduard & Výrost, Tomáš & Molnár, Peter, 2020. "Fear of the coronavirus and the stock markets," Finance Research Letters, Elsevier, vol. 36(C).
    11. Niels Joachim Gormsen & Ralph S J Koijen & Nikolai Roussanov, 0. "Coronavirus: Impact on Stock Prices and Growth Expectations," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 574-597.
    12. Chia-Lin Chang & Michael McAleer, 2020. "Alternative Global Health Security Indexes for Risk Analysis of COVID-19," IJERPH, MDPI, vol. 17(9), pages 1-17, May.
    13. Conlon, Thomas & McGee, Richard, 2020. "Safe haven or risky hazard? Bitcoin during the Covid-19 bear market," Finance Research Letters, Elsevier, vol. 35(C).
    14. Ortmann, Regina & Pelster, Matthias & Wengerek, Sascha Tobias, 2020. "COVID-19 and investor behavior," Finance Research Letters, Elsevier, vol. 37(C).
    15. Omair Haroon & Syed Aun R. Rizvi, 2020. "Flatten the Curve and Stock Market Liquidity – An Inquiry into Emerging Economies," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2151-2161, August.
    16. Alexander F. Wagner, 2020. "What the stock market tells us about the post-COVID-19 world," Nature Human Behaviour, Nature, vol. 4(5), pages 440-440, May.
    17. Alok Kumar Mishra & Badri Narayan Rath & Aruna Kumar Dash, 2020. "Does the Indian Financial Market Nosedive because of the COVID-19 Outbreak, in Comparison to after Demonetisation and the GST?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2162-2180, August.
    18. Claudiu Albulescu, 2020. "Coronavirus and financial volatility: 40 days of fasting and fear," Papers 2003.04005, arXiv.org.
    19. Hassan, Tarek & Hollander, Stephan & van Lent, Laurence & Schwedeler, Markus & Tahoun, Ahmed, 2020. "Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1," CEPR Discussion Papers 14573, C.E.P.R. Discussion Papers.
    20. Ding, Wenzhi & Levine, Ross & Lin, Chen & Xie, Wensi, 2021. "Corporate immunity to the COVID-19 pandemic," Journal of Financial Economics, Elsevier, vol. 141(2), pages 802-830.
    21. Shehzad, Khurram & Xiaoxing, Liu & Kazouz, Hayfa, 2020. "COVID-19’s disasters are perilous than Global Financial Crisis: A rumor or fact?," Finance Research Letters, Elsevier, vol. 36(C).
    22. Hao Xiong & Zuofeng Wu & Fei Hou & Jun Zhang, 2020. "Which Firm-specific Characteristics Affect the Market Reaction of Chinese Listed Companies to the COVID-19 Pandemic?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2231-2242, August.
    23. Nader Alber & Amr Saleh, 2020. "The Impact of Covid-19 Spread on Stock Markets: The Case of the GCC Countries," International Business Research, Canadian Center of Science and Education, vol. 13(11), pages 1-16, November.
    24. Singh, Amanjot, 2020. "COVID-19 and safer investment bets," Finance Research Letters, Elsevier, vol. 36(C).
    25. Claudiu Albulescu, 2020. "Coronavirus and oil price crash," Papers 2003.06184, arXiv.org, revised Mar 2020.
    26. World Bank, 2020. "Global Economic Prospects, January 2020," World Bank Publications - Books, The World Bank Group, number 33044.
    27. Xin Gu & Shan Ying & Weiqiang Zhang & Yewei Tao, 2020. "How Do Firms Respond to COVID-19? First Evidence from Suzhou, China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2181-2197, August.
    28. Hasan Fallahgoul, 2020. "Inside the Mind of Investors During the COVID-19 Pandemic: Evidence from the StockTwits Data," Papers 2004.11686, arXiv.org, revised May 2020.
    29. Faheem Aslam & Wahbeeah Mohti & Paulo Ferreira, 2020. "Evidence of Intraday Multifractality in European Stock Markets during the Recent Coronavirus (COVID-19) Outbreak," IJFS, MDPI, vol. 8(2), pages 1-13, May.
    30. Sharif, Arshian & Aloui, Chaker & Yarovaya, Larisa, 2020. "COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach," International Review of Financial Analysis, Elsevier, vol. 70(C).
    31. Norman V. Loayza & Steven Pennings, 2020. "Macroeconomic Policy in the Time of COVID-19," World Bank Publications - Reports 33540, The World Bank Group.
    32. Pius Babuna & Xiaohua Yang & Amatus Gyilbag & Doris Abra Awudi & David Ngmenbelle & Dehui Bian, 2020. "The Impact of COVID-19 on the Insurance Industry," IJERPH, MDPI, vol. 17(16), pages 1-14, August.
    33. Vasilii Erokhin & Tianming Gao, 2020. "Impacts of COVID-19 on Trade and Economic Aspects of Food Security: Evidence from 45 Developing Countries," IJERPH, MDPI, vol. 17(16), pages 1-28, August.
    34. Conghui Chen & Lanlan Liu & Ningru Zhao, 2020. "Fear Sentiment, Uncertainty, and Bitcoin Price Dynamics: The Case of COVID-19," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2298-2309, August.
    35. Erdem, Orhan, 2020. "Freedom and stock market performance during Covid-19 outbreak," Finance Research Letters, Elsevier, vol. 36(C).
    36. Dinh Hoang Bach Phan & Paresh Kumar Narayan, 2020. "Country Responses and the Reaction of the Stock Market to COVID-19—a Preliminary Exposition," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(10), pages 2138-2150, August.
    37. Michael McAleer, 2020. "Prevention Is Better Than the Cure: Risk Management of COVID-19," JRFM, MDPI, vol. 13(3), pages 1-5, March.
    38. Salisu, Afees A. & Ebuh, Godday U. & Usman, Nuruddeen, 2020. "Revisiting oil-stock nexus during COVID-19 pandemic: Some preliminary results," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 280-294.
    39. Vincenzo Del Giudice & Pierfrancesco De Paola & Francesco Paolo Del Giudice, 2020. "COVID-19 Infects Real Estate Markets: Short and Mid-Run Effects on Housing Prices in Campania Region (Italy)," Social Sciences, MDPI, vol. 9(7), pages 1-18, July.
    40. World Bank, 2020. "Global Economic Prospects, June 2020," World Bank Publications - Books, The World Bank Group, number 33748.
    41. Noura Eissa, 2020. "Pandemic Preparedness and Public Health Expenditure," Economies, MDPI, vol. 8(3), pages 1-19, July.
    42. Laura Alfaro & Anusha Chari & Andrew N. Greenland & Peter K. Schott, 2020. "Aggregate and Firm-Level Stock Returns During Pandemics, in Real Time," NBER Working Papers 26950, National Bureau of Economic Research, Inc.
    43. Carlo Capalbo & Antonio Aceti & Maurizio Simmaco & Rita Bonfini & Monica Rocco & Alberto Ricci & Christian Napoli & Matteo Rocco & Valeria Alfonsi & Antonella Teggi & Giovanni Battista Orsi & Marina B, 2020. "The Exponential Phase of the Covid-19 Pandemic in Central Italy: An Integrated Care Pathway," IJERPH, MDPI, vol. 17(11), pages 1-10, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wu, Tsung-Pao & Zheng, Yi & Wu, Hung-Che & Deng, Ruixin, 2024. "The causal relationship between the COVID-19, Delta and Omicron pandemic and the air transport industry: Evidence from China," Journal of Air Transport Management, Elsevier, vol. 116(C).
    2. Mariana Hatmanu & Cristina Cautisanu, 2021. "The Impact of COVID-19 Pandemic on Stock Market: Evidence from Romania," IJERPH, MDPI, vol. 18(17), pages 1-22, September.
    3. Dong, Xueqin & Huang, Lilong, 2024. "Exploring ripple effect of oil price, fintech, and financial stress on clean energy stocks: A global perspective," Resources Policy, Elsevier, vol. 89(C).
    4. Afees A. Salisu & Abdulsalam Abidemi Sikiru & Philip C. Omoke, 2023. "COVID-19 pandemic and financial innovations," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(4), pages 3885-3904, August.
    5. Shafa Guliyeva, 2023. "Analysis of the effect of Energy Prices on Stock Indexes During the Epidemic Crisis," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 526-536, March.
    6. Hua Guo & Yang Zhang & Yanling Peng & Tong Luo & Hong Wang, 2022. "Does COVID-19 Affect Household Financial Behaviors? Fresh Evidence From China," SAGE Open, , vol. 12(3), pages 21582440221, August.
    7. Wang, Lu & Ruan, Hang & Hong, Yanran & Luo, Keyu, 2023. "Detecting the hidden asymmetric relationship between crude oil and the US dollar: A novel neural Granger causality method," Research in International Business and Finance, Elsevier, vol. 64(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Padhan, Rakesh & Prabheesh, K.P., 2021. "The economics of COVID-19 pandemic: A survey," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 220-237.
    2. Cakici, Nusret & Zaremba, Adam, 2021. "Who should be afraid of infections? Pandemic exposure and the cross-section of stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    3. Zaremba, Adam & Kizys, Renatas & Tzouvanas, Panagiotis & Aharon, David Y. & Demir, Ender, 2021. "The quest for multidimensional financial immunity to the COVID-19 pandemic: Evidence from international stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    4. Aharon, David Y. & Siev, Smadar, 2021. "COVID-19, government interventions and emerging capital markets performance," Research in International Business and Finance, Elsevier, vol. 58(C).
    5. Naidu, Dharmendra & Ranjeeni, Kumari, 2021. "Effect of coronavirus fear on the performance of Australian stock returns: Evidence from an event study," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    6. Deng, Tianjie & Xu, Tracy & Lee, Young Jin, 2022. "Policy responses to COVID-19 and stock market reactions - An international evidence," Journal of Economics and Business, Elsevier, vol. 119(C).
    7. Harjoto, Maretno Agus & Rossi, Fabrizio & Lee, Robert & Sergi, Bruno S., 2021. "How do equity markets react to COVID-19? Evidence from emerging and developed countries," Journal of Economics and Business, Elsevier, vol. 115(C).
    8. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Karikari, Nana Kwasi & Gil-Alana, Luis Alberiko, 2022. "The outbreak of COVID-19 and stock market liquidity: Evidence from emerging and developed equity markets," The North American Journal of Economics and Finance, Elsevier, vol. 62(C).
    9. Narayan, Paresh Kumar & Devpura, Neluka & Wang, Hua, 2020. "Japanese currency and stock market—What happened during the COVID-19 pandemic?," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 191-198.
    10. Sui, Bo & Chang, Chun-Ping & Jang, Chyi-Lu & Gong, Qiang, 2021. "Analyzing causality between epidemics and oil prices: Role of the stock market," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 148-158.
    11. Bing, Tao & Ma, Hongkun, 2021. "COVID-19 pandemic effect on trading and returns: Evidence from the Chinese stock market," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 384-396.
    12. Rouatbi, Wael & Demir, Ender & Kizys, Renatas & Zaremba, Adam, 2021. "Immunizing markets against the pandemic: COVID-19 vaccinations and stock volatility around the world," International Review of Financial Analysis, Elsevier, vol. 77(C).
    13. Salisu, Afees A. & Vo, Xuan Vinh & Lucey, Brian, 2021. "Gold and US sectoral stocks during COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 57(C).
    14. Yarovaya, Larisa & Brzeszczyński, Janusz & Goodell, John W. & Lucey, Brian & Lau, Chi Keung Marco, 2022. "Rethinking financial contagion: Information transmission mechanism during the COVID-19 pandemic," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    15. Sène, Babacar & Mbengue, Mohamed Lamine & Allaya, Mouhamad M., 2021. "Overshooting of sovereign emerging eurobond yields in the context of COVID-19," Finance Research Letters, Elsevier, vol. 38(C).
    16. Narayan, Paresh Kumar & Phan, Dinh Hoang Bach & Liu, Guangqiang, 2021. "COVID-19 lockdowns, stimulus packages, travel bans, and stock returns," Finance Research Letters, Elsevier, vol. 38(C).
    17. Szczygielski, Jan Jakub & Charteris, Ailie & Bwanya, Princess Rutendo & Brzeszczyński, Janusz, 2022. "The impact and role of COVID-19 uncertainty: A global industry analysis," International Review of Financial Analysis, Elsevier, vol. 80(C).
    18. Yousaf, Imran, 2021. "Risk transmission from the COVID-19 to metals and energy markets," Resources Policy, Elsevier, vol. 73(C).
    19. Huynh, Nhan & Dao, Anh & Nguyen, Dat, 2021. "Openness, economic uncertainty, government responses, and international financial market performance during the coronavirus pandemic," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    20. Hassan, M. Kabir & Djajadikerta, Hadrian Geri & Choudhury, Tonmoy & Kamran, Muhammad, 2022. "Safe havens in Islamic financial markets: COVID-19 versus GFC," Global Finance Journal, Elsevier, vol. 54(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jijerp:v:17:y:2020:i:18:p:6729-:d:414041. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.