How does the stock market impact a nation’s economy? A recent study in Pakistan argues that the impact of COVID-19 outbreak on Pakistani stock market was predictable and surprising. Here, authors examine the impact of COVID-19 outbreak on Karachi Stock Exchange. They use a quantile on quantile estimation method and secondary and predicted data to test the hypothesis of a stock market response to COVID-19. The authors conclude that there is mixed evidence of a correlation between the COVID-19 outbreak and the Karachi stock market.
As for COVID-19, the research reveals that the stock market response to government announcements on social distancing and testing drives is influenced by the level of uncertainty. Increased uncertainty and risk aversion have adversely affected the stock market, while government economic policies were not significant. For this reason, the research in COVID-19 is still being conducted, but it is hoped that further research will provide a more comprehensive understanding of how COVID-19 impacts a country’s stock market.
During recent history, the stock market has only responded to a pandemic once – in 1987. That response was miraculous considering the pandemic had hit every part of the world. While each nation’s stock market was affected by the pandemic, it still showed that each country had its own unique reaction to the pandemic. This is because the impact of the virus varies depending on the economic policies and government intervention. Nonetheless, the reaction to the pandemic was generally positive.
Likewise, the COVID-19 pandemic has been found to negatively impact financial markets across countries. In fact, the disease outbreaks in the world have increased volatility in stock markets. In addition, global uncertainty increases, which negatively impacts stock returns. Empirical studies of this impact have shown that the first detection of the disease in China had a larger impact on Chinese stock markets than in other countries. Moreover, countries with a lower culture of individualism and uncertainty avoidance have more volatile stock markets.