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Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case

Year 2022, Volume: 22 Issue: 3, 227 - 240, 01.07.2022

Serkan Unal

https://doi.org/10.21121/eab.852538

Abstract

While the Covid-19 pandemic affected the world economies and investors’ behavior, it caused serious volatility in asset prices. Studies on Covid-19 in the literature generally analyzed the relationship between the number of cases, the number of deaths, and the performance of the stock markets. In this study, different from the literature, it has been tested whether investors can benefit from the phase difference between countries and overreaction in stock prices during the pandemic. In the study, which included 48 of the world's leading stock exchanges, countries were classified according to the time the epidemic progressed and the loss of stock market indices. Regardless of the country-based progression of the pandemic, it was observed that the global news flow was more effective in the pricing of different stock markets. On the other hand, it has been observed that the indices of the countries where the epidemic first spread, performed 6% worse than other indices on average, but this difference has closed over time. Another finding of the study is that the indices that lost the most during the period when the pandemic spread were the ones that showed the highest performance in the following period. This finding supports the overreaction hypothesis.

Keywords

COVID-19 and Stock Markets Pandemics Overreaction Statistical Arbitrage

References

  • Alfaro, L., Chari, A., Greenland, A. N., & Schott, P. K. (2020). Aggregate and firm-level stock returns during pandemics, in real time (No. w26950). National Bureau of Economic Research. Retrieved from: https://economics.yale.edu/sites/default/files/schott_-_covid_market_reactions_085.pdf
  • Al-Awadhi, A. M., Al-Saifi, K., Al-Awadhi, A., & Alhamadi, S. (2020). Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns. Journal of Behavioral and Experimental Finance, 100326. https://doi.org/10.1016/j.jbef.2020.100326
  • Ashraf, B. N. (2020). Stock markets’ reaction to COVID-19: cases or fatalities?. Research in International Business and Finance, 101249. https://doi.org/10.1016/j.ribaf.2020.101249
  • Baig, A., Butt, H. A., Haroon, O., & Rizvi, S. A. R. (2020). Deaths, Panic, Lockdowns and US Equity Markets: The Case of COVID-19 Pandemic, Finance Research Letters. https://doi.org/10.1016/j.frl.2020.101701
  • 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. https://doi.org/10.1093/rapstu/raaa008
  • Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053-1128. Retrieved from https://EconPapers.repec.org
  • Binny, R. N., Hendy, S. C., James, A., Lustig, A., Plank, M. J., & Steyn, N. (2020). Effect of Alert Level 4 on effective reproduction number: review of international COVID-19 cases. medRxiv. https://doi.org/10.1101/2020.04.30.20086934
  • El-Khatib, R., & Samet, A., (2020). The Impact of COVID-19 on Emerging Markets, EMNES Working Paper No 38, Retrieved from https://emnes.org/wp-content/uploads/2020/07/emnes_wp_038_impact_of_covid_19_on_emerging_markets.pdf
  • De Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact?. The Journal of finance, 40(3), 793-805. Retrieved from https://www.jstor.org/
  • Gormsen, N. J., & Koijen, R. S. (2020). Coronavirus: Impact on stock prices and growth expectations. University of Chicago, Becker Friedman Institute for Economics Working Paper, (2020-22). Retrieved from https://retirementincomejournal.com/wp-content/uploads/2020/03/SSRN-id3556143.pdf
  • 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), 2800. doi:10.3390/ijerph17082800
  • Lyócsa, Š., Baumöhl, E., Výrost, T., & Molnár, P. (2020). Fear of the coronavirus and the stock markets. ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg. Retrieved from https://www.econstor.eu/handle/10419/219336
  • Mazur, M., Dang, M., & Vega, M. (2020). COVID-19 and the march 2020 stock market crash. Evidence from S&P1500. Finance Research Letters, 101690. https://doi.org/10.1016/j.frl.2020.101690
  • MSCI. (2020). MSCI Index Categories. Retrieved from https://www.msci.com/market-cap-weighted-indexes
  • Narayan, P. K., Phan, D. H. B., & Liu, G. (2020). COVID-19 lockdowns, stimulus packages, travel bans, and stock returns. Finance Research Letters, 101732. doi: https://doi.org/10.1016/j.frl.2020.101732
  • Oh, J., Lee, J. K., Schwarz, D., Ratcliffe, H. L., Markuns, J. F., & Hirschhorn, L. R. (2020). National response to COVID-19 in the Republic of Korea and lessons learned for other countries. Health Systems & Reform, 6(1), e-1753464. https://doi.org/10.1080/23288604.2020.1753464
  • Okorie, D. I., & Lin, B. (2020). Stock Markets and the COVID-19 Fractal Contagion Effects. Finance Research Letters, 101640. https://doi.org/10.1016/j.frl.2020.101640
  • Phan, D. H. B., & Narayan, P. K. (2020). Country responses and the reaction of the stock market to COVID-19—A preliminary exposition. Emerging Markets Finance and Trade, 56(10), 2138-2150. https://doi.org/10.1080/1540496X.2020.1784719
  • Ramelli, S., & Wagner, A. (2020). What the stock market tells us about the consequences of COVID-19. Mitigating the COVID Economic Crisis: Act Fast and Do Whatever, 63. London: CEPR Press
  • Salisu, A. A., & Vo, X. V. (2020). Predicting stock returns in the presence of COVID-19 pandemic: The role of health news. International Review of Financial Analysis, 101546. https://doi.org/10.1016/j.irfa.2020.101546
  • Sharif, A., Aloui, C., & Yarovaya, L. (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, 101496. https://doi.org/10.1016/j.irfa.2020.101496
  • The New York Times. (2020). Italy, Pandemic's New Epicenter, Has Lessons for the World ... Retrieved from https://www.nytimes.com/2020/03/21/world/europe/italy-coronavirus-center-lessons.html
  • World Health Organization. (2020a). WHO Timeline - COVID-19. Retrieved from https://www.who.int/news-room/detail/27-04-2020-who-timeline---covid-19
  • World Health Organization. (2020b). WHO Coronavirus Disease (COVID-19) Dashboard. Retrieved from https://covid19.who.int/
  • Zeren, F., & Hızarcı, A. (2020). The Impact of COVID-19 Coronavirus on Stock Markets: Evidence from Selected Countries. Muhasebe ve Finans İncelemeleri Dergisi, 3(1), 78-84. doi: 10.32951/mufider.706159

Year 2022, Volume: 22 Issue: 3, 227 - 240, 01.07.2022

Serkan Unal

https://doi.org/10.21121/eab.852538

Abstract

References

  • Alfaro, L., Chari, A., Greenland, A. N., & Schott, P. K. (2020). Aggregate and firm-level stock returns during pandemics, in real time (No. w26950). National Bureau of Economic Research. Retrieved from: https://economics.yale.edu/sites/default/files/schott_-_covid_market_reactions_085.pdf
  • Al-Awadhi, A. M., Al-Saifi, K., Al-Awadhi, A., & Alhamadi, S. (2020). Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns. Journal of Behavioral and Experimental Finance, 100326. https://doi.org/10.1016/j.jbef.2020.100326
  • Ashraf, B. N. (2020). Stock markets’ reaction to COVID-19: cases or fatalities?. Research in International Business and Finance, 101249. https://doi.org/10.1016/j.ribaf.2020.101249
  • Baig, A., Butt, H. A., Haroon, O., & Rizvi, S. A. R. (2020). Deaths, Panic, Lockdowns and US Equity Markets: The Case of COVID-19 Pandemic, Finance Research Letters. https://doi.org/10.1016/j.frl.2020.101701
  • 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. https://doi.org/10.1093/rapstu/raaa008
  • Barberis, N., & Thaler, R. (2003). A survey of behavioral finance. Handbook of the Economics of Finance, 1, 1053-1128. Retrieved from https://EconPapers.repec.org
  • Binny, R. N., Hendy, S. C., James, A., Lustig, A., Plank, M. J., & Steyn, N. (2020). Effect of Alert Level 4 on effective reproduction number: review of international COVID-19 cases. medRxiv. https://doi.org/10.1101/2020.04.30.20086934
  • El-Khatib, R., & Samet, A., (2020). The Impact of COVID-19 on Emerging Markets, EMNES Working Paper No 38, Retrieved from https://emnes.org/wp-content/uploads/2020/07/emnes_wp_038_impact_of_covid_19_on_emerging_markets.pdf
  • De Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact?. The Journal of finance, 40(3), 793-805. Retrieved from https://www.jstor.org/
  • Gormsen, N. J., & Koijen, R. S. (2020). Coronavirus: Impact on stock prices and growth expectations. University of Chicago, Becker Friedman Institute for Economics Working Paper, (2020-22). Retrieved from https://retirementincomejournal.com/wp-content/uploads/2020/03/SSRN-id3556143.pdf
  • 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), 2800. doi:10.3390/ijerph17082800
  • Lyócsa, Š., Baumöhl, E., Výrost, T., & Molnár, P. (2020). Fear of the coronavirus and the stock markets. ZBW – Leibniz Information Centre for Economics, Kiel, Hamburg. Retrieved from https://www.econstor.eu/handle/10419/219336
  • Mazur, M., Dang, M., & Vega, M. (2020). COVID-19 and the march 2020 stock market crash. Evidence from S&P1500. Finance Research Letters, 101690. https://doi.org/10.1016/j.frl.2020.101690
  • MSCI. (2020). MSCI Index Categories. Retrieved from https://www.msci.com/market-cap-weighted-indexes
  • Narayan, P. K., Phan, D. H. B., & Liu, G. (2020). COVID-19 lockdowns, stimulus packages, travel bans, and stock returns. Finance Research Letters, 101732. doi: https://doi.org/10.1016/j.frl.2020.101732
  • Oh, J., Lee, J. K., Schwarz, D., Ratcliffe, H. L., Markuns, J. F., & Hirschhorn, L. R. (2020). National response to COVID-19 in the Republic of Korea and lessons learned for other countries. Health Systems & Reform, 6(1), e-1753464. https://doi.org/10.1080/23288604.2020.1753464
  • Okorie, D. I., & Lin, B. (2020). Stock Markets and the COVID-19 Fractal Contagion Effects. Finance Research Letters, 101640. https://doi.org/10.1016/j.frl.2020.101640
  • Phan, D. H. B., & Narayan, P. K. (2020). Country responses and the reaction of the stock market to COVID-19—A preliminary exposition. Emerging Markets Finance and Trade, 56(10), 2138-2150. https://doi.org/10.1080/1540496X.2020.1784719
  • Ramelli, S., & Wagner, A. (2020). What the stock market tells us about the consequences of COVID-19. Mitigating the COVID Economic Crisis: Act Fast and Do Whatever, 63. London: CEPR Press
  • Salisu, A. A., & Vo, X. V. (2020). Predicting stock returns in the presence of COVID-19 pandemic: The role of health news. International Review of Financial Analysis, 101546. https://doi.org/10.1016/j.irfa.2020.101546
  • Sharif, A., Aloui, C., & Yarovaya, L. (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, 101496. https://doi.org/10.1016/j.irfa.2020.101496
  • The New York Times. (2020). Italy, Pandemic's New Epicenter, Has Lessons for the World ... Retrieved from https://www.nytimes.com/2020/03/21/world/europe/italy-coronavirus-center-lessons.html
  • World Health Organization. (2020a). WHO Timeline - COVID-19. Retrieved from https://www.who.int/news-room/detail/27-04-2020-who-timeline---covid-19
  • World Health Organization. (2020b). WHO Coronavirus Disease (COVID-19) Dashboard. Retrieved from https://covid19.who.int/
  • Zeren, F., & Hızarcı, A. (2020). The Impact of COVID-19 Coronavirus on Stock Markets: Evidence from Selected Countries. Muhasebe ve Finans İncelemeleri Dergisi, 3(1), 78-84. doi: 10.32951/mufider.706159
There are 25 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Articles
Authors

Serkan Unal 0000-0002-7060-979X

Early Pub Date June 22, 2022
Publication Date July 1, 2022
Acceptance Date April 7, 2022
Published in Issue Year 2022 Volume: 22 Issue: 3

Cite

APA Unal, S. (2022). Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case. Ege Academic Review, 22(3), 227-240. https://doi.org/10.21121/eab.852538
AMA Unal S. Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case. ear. July 2022;22(3):227-240. doi:10.21121/eab.852538
Chicago Unal, Serkan. “Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case”. Ege Academic Review 22, no. 3 (July 2022): 227-40. https://doi.org/10.21121/eab.852538.
EndNote Unal S (July 1, 2022) Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case. Ege Academic Review 22 3 227–240.
IEEE S. Unal, “Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case”, ear, vol. 22, no. 3, pp. 227–240, 2022, doi: 10.21121/eab.852538.
ISNAD Unal, Serkan. “Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case”. Ege Academic Review 22/3 (July 2022), 227-240. https://doi.org/10.21121/eab.852538.
JAMA Unal S. Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case. ear. 2022;22:227–240.
MLA Unal, Serkan. “Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case”. Ege Academic Review, vol. 22, no. 3, 2022, pp. 227-40, doi:10.21121/eab.852538.
Vancouver Unal S. Can Investors Benefit from the Phase Difference Between Countries and Overreaction of the Major World Markets During the Pandemics? Study on the Covid-19 Case. ear. 2022;22(3):227-40.
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