DISRUPTION OF CONTINUITY OR BUSINESS AS USUAL?: A SECTORAL ANALYSIS OF THE IMPACT OF COVID-19 ON EQUITY MARKETS IN BANGLADESH
Keywords:
Equity Market, COVID-19, Lockdown, Chow Test
Abstract
The present paper analyses the impact of the COVID-19 breakout on the frontier stock market Dhaka Stock Exchange (DSE), exemplified by the case of Bangladesh. This study is based on secondary data from the official website of the Dhaka Stock Exchange. The sampling period extends across two sub-periods, referred to as the pre-lockdown period, extending from March 19, 2019, to March 25, 2020, and the re-opening period stretching from May 31, 2020, to March 11, 2021. Taken together, both sub-periods include a maximum of 442 data points. Our dataset consists of 106 listed companies from the Pharmaceutical, Engineering, and Insurance sectors in DSE. A classical Chow test was used to detect structural breaks. In a vast majority of cases, our results confirm the presence of structural breaks as an effect of Covid-19 by rejecting the null hypothesis. Our analysis of the statistical risk-return profiles of the companies under investigation indicates that the temporary interruption of stock trading in DSE was indeed a “game-changer”. Moreover, our findings support the view that pairwise return correlations tend to be larger during rapid market downturns than they are under “normal” or “positive” market conditions.
JEL Classification Codes: C32, C58, G10.
References
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Zach, T. (2003). Political events and the stock market: Evidence from Israel. INTERNATIONAL JOURNAL OF BUSINESS, 8(3), 245-266. Retrieved from https://ijb.cyut.edu.tw/p/412-1010-5323.php?Lang=en
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Al-Awadhi, A. M., Alsaifi, K., Al-Awadhi, A., & Alhammadi, S. (2020). Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns. Journal of Behavioral and Experimental Finance, 27, 1-5. https://doi.org/10.1016/j.jbef.2020.100326
Alsaifi, K., Elnahass, M., & Salama, A. (2020). Market responses to firms’ voluntary carbon disclosure: Empirical evidence from the United Kingdom, Journal of Cleaner Production, 262, 121377. https://doi.org/10.1016/j.jclepro.2020.121377
Bai, Y. (2014). Cross-border sentiment: An empirical analysis on EU stock markets. Applied Financial Economics, 24(4), 259-290. https://doi.org/10.1080/09603107.2013.864035
Baker, S. R., Bloom, N., Davis, S. J., Kost, K., Sammon, M., & Viratyosin, T. (2020). The Unprecedented Stock Market Reaction to COVID-19. The Review of Asset Pricing Studies, 10(4), 742-758. https://doi.org/10.1093/rapstu/raaa008
Bash, A., & Alsaifi, K. (2019). Fear from uncertainty: An event study of Khashoggi and stock market returns. Journal of Behavioral and Experimental Finance, 23(C), 54-58. https://doi.org/10.1016/j.jbef.2019.05.004
Bhunia, A., & Ganguly, S. (2020). An assessment of volatility and leverage effect before and during the period of Covid-19: a study of selected international stock markets. International Journal of Financial Services Management, 10(2), 113-127. https://doi.org/10.1504/IJFSM.2020.110224
Buhagiar, R., Cortis, D., & Newall, P. W. S. (2018). Why do some soccer bettors lose more money than others? Journal of Behavioral and Experimental Finance, 18(C), 85-93. https://doi.org/10.1016/j.jbef.2018.01.010
Chaudhary, R., Bakhshi, P., & Gupta, H. (2020). Volatility in International Stock Markets: An Empirical Study during COVID-19. Journal of Risk and Financial Management, 13(9), 1-17. https://doi.org/10.3390/jrfm13090208
Chen, C.D., Chen, C.C., Tang, W.W. & Huang, B.Y. (2009). The positive and negative impacts of the SARS outbreak: A Case of the Taiwan Industries, The Journal of Developing Areas, 43(1), 281-293. Retrieved from https://www.jstor.org/stable/40376284
Chen, L., Li, S., & Lin, W. (2007). Corporate governance and corporate performance: Some evidence from newly listed firms on Chinese stock markets. International Journal of Accounting, Auditing and Performance Evaluation, 4(2), 183-197. https://doi.org/10.1504/IJAAPE.2007.015233
Gao, X., Ren, Y., & Umar, M. (2021). To what extent does COVID-19 drive stock market volatility? A comparison between the US and China. Economic Research-Ekonomska Istraživanja, 1-21. https://doi.org/10.1080/1331677X.2021.1906730
Giudice, A., D., & Paltrinieri, A. (2017) The impact of the Arab Spring and the Ebola outbreak on African equity mutual fund investor decisions, Research in International Business and Finance, 41(C), 600-612. https://doi.org/10.1016/j.ribaf.2017.05.004
Gormsen, N. J., & Koijen, R. S. (2020). Coronavirus: Impact on stock prices and growth expectations. The Review of Asset Pricing Studies, 10(4), 574-597. https://doi.org/10.1093/rapstu/raaa013
Granger, C.W. J., & Silvapulle, P. (2002) Capital Asset Pricing Model, Bear, Usual and Bull Market Conditions and Beta Instability: A Value-at-Risk Approach. NBER Working Paper 1062.
Gujarati, D.N., & Porter, D.C. (2009) Basic Econometrics. 5th Edition. McGraw Hill Inc.
Guo, M., Kuai, Y., & Liu, X., (2020). Stock market response to environmental policies: Evidence from heavily polluting firms in China, Economic Modelling, Elsevier, 86(C), 306-316.
Hoof, E.V. (2020). Lockdown is the world’s biggest psychological experiment - and we will pay the price. Retrieved from https://www.weforum.org/agenda/2020/04/this-is-the-psychological-side-ofthe-covid-19-pandemic-that-were-ignoring
Ichev, R., & Marinc, M. (2018). Stock prices and geographic proximity of information: Evidence from the Ebola outbreak. International Review of Financial Analysis, 56(C), 153-166. https://doi.org/10.1016/j.irfa.2017.12.004
Kaur, H., & Saxena, S. (2020). Stock Market Sensitiveness: Impact of Epidemic or Pandemic. European Journal of Molecular & Clinical Medicine, 7(8), 2861-2870. Retrieved from https://ejmcm.com/article_4798.html
Kowalewski, O., & Spiewanowski, P. (2020). Stock market response to potash mine disasters. Journal of Commodity Markets, 20, 100124. https://doi.org/10.1016/j.jcomm.2020.100124
Liu, H., Manzoor, A., Wang, C., Zhang, L., & Manzoor, Z. (2020). The COVID-19 Outbreak and Affected Countries Stock Markets Response. International Journal of Environmental Research and Public Health, 17(8), 1-19. https://doi.org/10.3390/ijerph17082800
Morales, L., & Callaghan, B.A. (2020). Covid19: Global Stock Markets “Black Swan”. Critical Letters in Economics & Finance, 1(1), 1-14. Retrieved from https://ulir.ul.ie/handle/10344/8728
Nicola, M., Alsafi, Z., Sohrabi, C., Kerwan, A., Al-Jabir, A., Iosifidis, C., Agha, M., Agha, R. (2020). The socio-economic implications of the coronavirus pandemic (COVID-19): A review, International Journal of Surgery, 78, 185-193. https://doi.org/10.1016/j.ijsu.2020.04.018
Park, M., Jin, Y. H., & Bessler, D. A. (2008). The impacts of animal disease crises on the Korean meat market. The Journal of the International Association of Agricultural Economists, 39(2), 183-195. https://doi.org/10.1111/j.1574-0862.2008.00325.x
Rahman, M. L., Amin, A., & Al Mamun, M. A. (2021). The COVID-19 outbreak and stock market reactions: Evidence from Australia. Finance Research Letters, 38,101832. https://doi.org/10.1016/j.frl.2020.101832
Shanaev, S., & Ghimire, B. (2019). Is all politics local? Regional political risk in Russia and the panel of stock returns. Journal of Behavioral and Experimental Finance, 21(C), 70-82. https://doi.org/10.1016/j.jbef.2018.11.002
Topcu, M., & Gulal, O. S. (2020). The impact of COVID-19 on emerging stock markets. Finance Research Letters, 36(C), 1-4. https://doi.org/10.1016/j.frl.2020.101691
Woodward, G., & Anderson, H., M. (2009). Does beta react to market conditions? Estimates of ‘bull’ and ‘bear’ betas using a nonlinear market model with an endogenous threshold parameter. Quantitative Finance, 9(8), 913-924. https://doi.org/10.1080/14697680802595643
Zach, T. (2003). Political events and the stock market: Evidence from Israel. INTERNATIONAL JOURNAL OF BUSINESS, 8(3), 245-266. Retrieved from https://ijb.cyut.edu.tw/p/412-1010-5323.php?Lang=en
Zhang, S. X., Huang, H., & Wei, F. (2020). Geographical distance to the epicenter of Covid-19 predicts the burnout of the working population: Ripple effect or typhoon eye effect? Psychiatry Research, 112998. https://doi.org/10.1016/j.psychres.2020.112998
Published
2022-04-21
How to Cite
Khatun, M., & Siddiqui, S. (2022). DISRUPTION OF CONTINUITY OR BUSINESS AS USUAL?: A SECTORAL ANALYSIS OF THE IMPACT OF COVID-19 ON EQUITY MARKETS IN BANGLADESH. International Journal of Accounting & Finance Review, 11(1), 1-7. https://doi.org/10.46281/ijafr.v11i1.1692
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
