Effect of COVID-19 Pandemic on International Capital Market

(International Journal of Economics and Financial Issues.2020)

SUMMARY
The first reported Corona Virus was in Wuhan province of China. This disease then spread
rapidly around the world. To control the spread of virus certain measures have been adopted
including restriction on travel, ordering social distancing and closing schools, bars, restaurants
and other businesses.
The COVID-19 pandemic was a major uncertainty shock that result restriction of economic
activities. The period of high uncertainty effect stock market. It generate impact on securities
traded in capital market. The pandemic cause a change in prices return and efficiency of
securities.
The study comprises of indexes of 44 different countries. The data comprise daily information
from 01/02/2019 to 05/15/2020. The study consists of 358 daily observation about representative
indexes of each one of 44 countries.

Effect of Crisis on Securities Prices

By using regression model the data on a time series was analysed descriptively. The prices of
each market and their behaviour was analysed before the crisis generated by COVID-19.
When the market reacted to the crises it was observed that out of out of ten largest economies,
six shows the most significant drop in the price of their market indices. Brazil and Canada shows
a substantial drop in the prices of their market indices with an average of 12.99% on March 12th,
2020. The United States and India present the second largest drop in the prices of their indexes
on 13/12/2020. It shows that negative change in prices of securities occur after the covid-19
pandemic. It shows that negative variation occurred in price of securities after COVID-19
pandemic announcement.
Effect of Crisis on Return
After the announcement of WHO about Corona outbreak, the market had a drop in their return.
The pandemic crisis results reduction in return and increased volatility of securities traded in
international capital market.
Effect of Crisis on Efficiency
The regression analysis of the efficiency indexes from the pre-pandemic period to the post
pandemic period shows that market efficiency is not constant and cultural aspect effect market
differently. The pre pandemic period shows that market efficiency reduce by cultural aspect
related to individualism and aversion to uncertainty of individuals belonging to these economies
as well as efficiency was increased by inflation.
In post pandemic period market efficiency was increased by individualism and reduced by
indulgence. Economies that are more individualistic, where individuals are less integrated with
groups tend to present less inefficiency or greater efficiency in their securities. Individualistic
economies shows significant adaption to social distancing measures resulting from the pandemic
with positive repercussion on level of efficiency.