THE COVID-19 EFFECTS ON STOCK MARKETS OF EMERGING COUNTRIES: ANALYSES OF SAARC COUNTRIES

Abstract

The COVID-19 pandemic has left an indelible mark on societies and economies across the globe. This study focuses on the impact of COVID-19 on stock market performance in the South Asian Association for Regional Cooperation (SAARC) countries, namely India, Pakistan, Bangladesh, Sri Lanka, the Maldives, and Bhutan. The purpose of this research is to examine how the pandemic, with its distinct phases, affected stock market returns in these nations. To achieve this objective, we employ the event study methodology, a widely accepted approach in empirical investigations. We analyze the relationship between COVID-19 daily total deaths and daily total cases and stock markets in SAARC countries. Cointegration tests are used to assess the relationship between COVID-19 severity and stock market performance. The findings reveal that the COVID-19 pandemic had a substantial impact on stock market returns in SAARC countries. During the initial phase of the pandemic and country-imposed lockdowns, stock returns experienced significant declines. A 1% increase in COVID-19 cases or deaths was associated with a 5% decrease in stock returns. Furthermore, the study underscores the importance of psychological factors in market behavior, as not all stock markets exhibited similar reactions to the absence of death cases. This research contributes to the existing body of knowledge by exploring the impact of COVID-19 on stock markets in the SAARC countries, a region with unique economic and cultural characteristics. The study's novel approach in examining the pandemic's distinct phases provides a nuanced understanding of how stock markets reacted during various stages of the crisis. The study also highlights the behavioral dynamics at play in emerging market economies, where investor sentiment can play a significant role in market movements. In conclusion, this research underscores the profound influence of COVID-19 on stock market performance in SAARC countries and provides valuable insights for investors, policymakers, and researchers in understanding the complex relationship between pandemics and financial markets. As the world continues to grapple with the repercussions of the pandemic, the study's findings hold relevance for future economic and financial planning.