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PAR
34,3
406
Received 16 November 2021
Revised 2 February 2022
Accepted 13 February 2022
Pacific Accounting Review
Vol. 34 No. 3, 2022
pp. 406-425
© Emerald Publishing Limited
0114-0582
DOI 10.1108/PAR-11-2021-0184
What happens to the stock market
during the COVID-19 pandemic?
A systematic literature review
Puspita Ghaniy Anggraini
Department of Accounting, Universitas Gadjah Mada, Yogyakarta, Indonesia
Evy Rahman Utami
Department of Accounting, Universitas Gadjah Mada, Yogyakarta, Indonesia and
Department of Accounting, Universitas Muhammadiyah Yogyakarta,
Yogyakarta, Indonesia, and
Eva Wulandari
Department of Accounting, Universitas Gadjah Mada, Yogyakarta, Indonesia and
Department of Accounting, Universitas Tidar, Magelang, Indonesia
Abstract
Purpose – This study aims to evaluate papers that discuss the stock market during the COVID-19
pandemic to discover lessons that may be beneficial for coping with similar situations in the future.
Design/methodology/approach – This study used the review procedures following Hoque (2014) with
modifications, including co-words analysis to map themes. The articles to be reviewed were identified by
entering the search keywords “capital market” AND “Covid” and “stock market” AND “Covid” in the Scopus
database. After applying a set of criteria, 89 articles were used in the subsequent analysis. The country setting
and study findings are recognized, and the lessons learned are further determined.
Findings – As COVID-19 has been designated a global pandemic by the WHO, and its impact is seen in
many countries, the setting adopted by many researchers includes two or more countries (i.e., “International”).
Six clusters of themes are identified, namely, market responses, spillover/contagion, investor sentiment,
investor herding, policy and asset intensity. In this way, the lessons gained cover several stock market
elements, including the market, industry, investors, government and companies.
Originality/value – Given the importance of understanding the COVID-19 pandemic and the relevance of
the stock market in indicating its severity, to the best of the authors’ knowledge, there has been no literature
review research on the stock market during COVID-19. Furthermore, this study also defines what lessons can
be drawn.
Keywords Stock market, COVID-19, Pandemic, Literature review
Paper type General review
1. Introduction
Despite having a more or less similar impact on global finance (Deb, 2021), the crisis due to
COVID-19 is different from the previous global financial crisis in 2007–2008. The COVID-19
crisis has a far-reaching impact, affecting nearly all the sectors, the levels of society and
the countries worldwide. The macroeconomic consequences of this crisis include its
unprecedented impact on the capital markets or, specifically, the stock markets (Yaseen and
Authors would like to thank the Indonesian Ministry of Education and Culture, Research and Technology
and the Ministry of Finance for providing doctoral scholarships that have enabled this article to be written.
Omet, 2021). The MSCI World Index dropped by up to 18.90% on the eighth day after the A systematic
WHO announced that COVID-19 was a global pandemic on 11 March, 2020 (MarketWatch, literature
2021). As a result, almost all sectors experienced a sharp decline in stock prices and returns.
Even worse, the Indonesia Stock Exchange halted trading for 30 min on 13 March, 2020,
review
after the JCI fell by 5%, to prevent further declines (Saragih, 2020) in response to the
growing uncertainty and investor fear regarding the pandemic.
As a health disaster, the COVID-19 outbreak is distinct from the prior epidemics, i.e. HIV/AIDS,
SARS, MERS and Ebola. COVID-19 spread rapidly between humans until it was declared a global 407
pandemic in mid-March 2020, exacerbated by the absence of a vaccine for at least the first year after
the first case was identified in China. Confirmed cases and deaths continued to increase throughout
the first year of the COVID-19 pandemic, with the highest number of increases for cases occurring
on 20 January, 2021, and deaths on 3 February, 2021. The countries’ governments enacted several
policies to limit the severe impacts of COVID-19, including lockdowns, movement restrictions,
learning from home, working from home for non-essential businesses or services, the cancelation of
events, banning crowds and fiscal stimulus (Abu et al., 2021; Hunjra et al., 2021). However, because
COVID-19 is a novel coronavirus whose strain has never been identified in humans before, many
countries were unsure how to handle it. Consequently, 143 out of 179 countries in 2020 experienced
negative economic growth, with a global average of 3.59% (World Bank, 2021).
Based on the phenomena described above, the purpose of this study is to review the articles on
the stock market during the COVID-19 pandemic. The research questions to be addressed are:

RQ1. What has been done by the existing research on the stock market in the COVID-19
era (country setting, themes and findings)?
RQ2. What lessons can be learned from those studies?
The stock market is chosen to be studied in understanding the COVID-19 pandemic because
it may indicate the severity of COVID-19 in the industry, investors’ reactions to uncertainty
and the effectiveness of the government’s policies in reducing the uncertainty due to COVID-
19. Moreover, COVID-19 has increased the stock market risk (Dai et al., 2021; Shear et al.,
2020). It is thus expected that this study will open new knowledge for governments, the
markets, industries, companies and even investors on how to deal with the rest of the
COVID-19 pandemic or similar crises that may occur in the future.
The remainder of this paper is organized as follows. Section 2 presents the methodology
used to review the articles. The frequency distribution of the articles by year, publication-
quality, journals, authors and research setting are provided in Section 3. This section also
includes a co-words analysis to identify the research theme studied in this literature review. For
each theme recognized, the current research findings are discussed and summarized. The
lessons that can be drawn from the COVID-19 pandemic in the stock market are then concluded
in Section 4. Finally, the conclusion and limitations of this study are presented in Section 5.

2. Methodology
The literature review processes and the search strategy used are described in this section.
This study followed the procedures of Hoque (2014) with some modifications, including the
application of co-word analysis in mapping the themes (Poje and Zaman Groff, 2021). There
are at least two reasons for adopting the procedures. First, this study’s research questions
imply the use of descriptive review methodology, which has three definite stages: extraction,
analysis and synthesis, among other types (for detailed, see Xiao and Watson, 2019). Second,
Fisch and Block (2018) suggest that a systematic literature review should identify the
motivation of the research topic and questions, apply screening criteria, balance between
PAR breadth and depth (the criteria of relevance in this study), focus on concepts, provide
34,3 syntheses and interpretation of the analysis and follow an organized structure. Hoque’s
(2014) procedures correspond to a three-stage descriptive review methodology and six
recommendations for a good systematic literature review.
The application of Hoque’s (2014) procedures in this study (Figure 1) is detailed as
follows. The first step was to decide on the topic of the study, which was the stock market in
408
Determine the topic:
Stock market during COVID-19

Set the objective(s):

(1) Progress of current research
(2) Lessons learned

Search in the Scopus database

Apply a set of criteria:

(1) Journal category Extraction
(2) Article type
(3) Accessibility
(4) Language
(5) Publication quality
(6) Relevancy

Identify items from the articles:

Analysis
Research settings Results

Identify lessons learned

Figure 1.
Literature review Synthesis
process adopted from
Hoque (2014) with Conclude and determine
modification limitations
the COVID-19 era. As indicated in the previous section, this study worked on two research A systematic
questions, what existing research on this topic has been discovered and what can be gained literature
from the reported results. The next step was to collect the articles this study retrieved from
review
the Scopus database. The relevant articles to be reviewed were identified based on the
research strategy that involved the searched terms, journal category, article type,
accessibility, language, publication quality and relevancy.
This study used two combinations of the searched terms that reflected the topic studied
to provide a complete result, i.e. “capital market” AND “covid” and “stock market” AND
409
“Covid”. All the articles published in journals within accounting, management and business
category were included. Only empirical articles have been selected, in keeping with the
research questions. The accessibility criteria meant the articles were available in this study
to be downloaded. The articles were also written in English. The Scimago journal ranking
was used to determine the quality of the publications, in which the unindexed journals were
excluded. Articles that were not directly relevant to the investigated topic were also
removed. Applying all of the criteria, the final number of articles to be analyzed was 89 from
145 [1] initial articles. Since COVID-19 was first discovered in China in 2019, this study only
used articles published in 2020 and 2021.
All of the selected articles were read and coded manually. Some of the information to be
identified from each article is the country setting and the findings. Because the reported
results were discussed based on the theme cluster, co-word analysis [2] was used to classify
the articles based on the authors’ keywords similarity. The co-word analysis was done using
VOSviewer software. The lessons learned are thus determined.

3. Literature review
3.1 Frequency distribution of articles by publication quality and year
The frequency distribution of the articles’ publication quality and year is shown in Figure 2.
Of the 89 articles reviewed, 30 articles (33.71%) were published in high-quality journals
indexed Q1 by Scimago. The mid-quality journals produced 34 articles (38.20%) and 22
(24.72%) for Q2 and Q3, respectively. Only a small number of articles (three or 3.37%)
appeared in Q4. For all the quality publications, except Q4, there are significantly more
articles published in 2021 than in 2020. This is quite reasonable considering that 2020 was

Frequency Distribution by Publication Quality and Year

40
35
27
30
25
25
20 14
2021
15 Figure 2.
2020
10 Frequency
distribution of
5 7 8 1 articles by
5 publication quality
0 2
and year
Q1 Q2 Q3 Q4
PAR the first year that COVID-19 began to spread around the world, so there were relatively
34,3 insufficient data for studying the effect of COVID-19 on the stock markets yet. Another
interesting pattern, shown in Figure 2, is that in 2020 the highest number of articles was in
Q3 (eight or 36.36%), while in 2021, many articles were issued in Q2 (27 or 40.30%), followed
by Q1 (25 or 37.31%). In addition to showing an improvement in the quality of the
publication, this also indicated an increase in the attention paid to, and the importance of
410 this topic, given each journals’ high quality comes along with the impact scale.

3.2 Frequency distribution of articles by journals

Figure 3 presents the distribution of articles, by journal, for the top 10 journals identified in
this study. The top 10 were selected from 19 journals based on frequency, implying these
journals had the most articles on the stock market and COVID-19 topic. The proportion of
the publication’s quality in those top journals is relatively balanced, that is, 3, 4 and 3 for Q1,
Q2 and Q3, respectively.
Research in International Business and Finance was the journal that published the most
articles, namely, 11 out of 89 articles (12.36%). This may have been due to that journal’s
focus on research exploring current and new issues in the field of international finance.
Hereof, COVID-19, which was introduced at the end of 2019, started to spread worldwide
and caused unprecedented volatility in the stock market (Estrada et al., 2021), making it a
relevant issue for financial studies. As Asia had become a popular setting for studying this
topic (see Figure 4), the Journal of Asian Finance, Economics, and Business held the second
position with eight articles (8.99%). Indeed, this journal is devoted to contemporary finance,
economics and business issues in Asia, including Central Asia, East Asia, South Asia,
Southeast Asia and the Middle East.
The remaining five out of the top 10 were financial journals, with 21 articles (23.59%).
This was understandable given that the impact of the COVID-19 pandemic on the stock
markets was more or less similar to that of the 2008 global financial crisis (Deb, 2021). In
that way, many articles on financial studies were interested in investigating the phenomena.
Meanwhile, articles published in the journal Contemporary Economics, Technological
Forecasting and Social Change and Tourism Economics numbered 4 (4.49%), 3 (3.37%) and
3 (3.37%), respectively. In addition to the top 10 journals, the other 19 journals included

Frequency Distribution of Articles by Journals

Res. Int. Bus. Finance 11

J. Asian Finance Econ. Bus. 8
Financial Innov. 5
Int. J. Finance Econ. 5
Invest. Manag. Financial Innov. 5
Contemp. Econ. 4
Technol. Forecast. Soc. Change 3
Tour. Econ. 3
Figure 3. J. Sustain. Finance Invest. 3
Frequency
distribution of Rev. Behav. Finance 3
articles by journals
0 2 4 6 8 10 12
 Frequency Distribution of Articles by Research Setting A systematic
40 36
literature
35 review
30
25
20 411
15
8 9 9
10 7 7
4 5
5 2 1 1
Figure 4.
0
Frequency
distribution of
articles by research
setting

articles with more diverse perspectives which explored the effects of COVID-19 on the stock
market, including investor behavior and government policies. These amounted to 43.82%,
covering one to two articles each.

3.3 Frequency distribution of articles by research setting

This study classified the country setting of the articles reviewed into several categories, as
shown in Figure 4, in the following way. First, articles using the setting of one or more
countries originating from the same region were classified and labeled using the region’s
name. Second, articles whose setting included many countries from different regions but still
on the same continent were grouped by continent. Third, articles featuring samples from
many countries from different regions and continents were named “International.” Finally,
articles using a sample of all the countries were tagged as “Global.”
International was the most frequent setting used by research into this topic, which
amounted to 36 articles (40.45%). This demonstrated that, even though the COVID-19
pandemic emerged in China, studies in several countries (International) were worthwhile. Of
the five studies in the Global sample, Khan et al. (2020) and Khanthavit (2020a) investigated
market indices, whereas Harjoto and Rossi (2021) used sectoral indexes based on the MSCI.
Meanwhile, Anguera-Torrell et al. (2021) and Maneenop and Kotcharin (2020) focused on a
single industry: the hotel and airline industry. The remaining 53.93% (48) were done with a
sample of countries representing various continents and regions.

3.4 Co-words analysis

Figure 5 below shows the results of a co-word analysis using the authors’ keywords for the
89 reviewed articles. The frequency of a word in an article’s keywords was indicated by the
size of the circle where the word is located. Meanwhile, the colors signify groupings that
suggest how frequently the words appeared together in an article’s keywords. The closer
and thicker the line connecting the words, the more closely linked they are. As the topic
studied in this review, the words that appear most frequently are stock market and COVID-
19, denoted by the two biggest circles in the center of Figure 5.
PAR
34,3

412

Figure 5.
Co-word analysis

There are ten clusters identified by the VOSviewer related to the stock market during the
COVID-19 pandemic, as implied by the number of distinct colors. Some keywords appear in
incorrect groups because the classification was based on the frequency with which the
words come together. For example, “sentiment index” does not belong in the same group as
“investor sentiment” and “Google search volume.” Another example is “policy response,”
which is not grouped with “lockdown” and “economic policy uncertainty.” Therefore, this
study made adjustments and reductions to clarify the groupings, leaving six clusters of
themes.
Figure 6 above depicts the six clusters that will be discussed in further detail in this
article. Those are: market responses, spillover/contagion, investor sentiment, investor
herding, policy and assets intensity. The first cluster, market responses, is the most general,
including the efficient market hypothesis and the blue cluster identified by VOSviewer. The
main emphasis of this cluster was to highlight research that investigates the performance
and volatility (return and volume) of stocks at both firm-level and market-level, which has
typically been conducted using the event study method. Given the global spread of COVID-
19, the second cluster focused on studies examining either the spillover effect between
sectors or the contagion effect across the countries’ stock markets. The third and fourth
clusters discussed investor behavior, namely, sentiment and herding, in the face of
uncertainty about the pandemic. The fifth cluster analyzed studies on government policy
responses, while the sixth cluster dealt with articles that investigated the effect of asset
intensity on corporate resilience.

3.5 Existing research findings by themes

3.5.1 Market responses. According to Hunjra et al. (2021), the COVID-19 pandemic disrupted
the global economy and capital markets. Indeed, COVID-19 could cause damage similar to
 A systematic
literature
review

413

Figure 6.
Clustered themes
identified for further
review

the 1929 catastrophe in the form of stagpression, in which recessions overlapped

depressions, resulting in structural economic collapse (Estrada et al., 2021). In Saudi Arabia,
Hacine Gherbi and Alsedrah (2021) found that the COVID-19 pandemic leads to financial
crisis, which may be eased in the long term by increasing trading liquidity. Less frequent
trading in the short term was because the investors continue to retain their investment for
fear (Alsedrah and Hacine Gherbi, 2021). In this regard, responsive government policies
were proven to induce capital market liquidity (Alaoui Mdaghri et al., 2020). Similar to Saudi
Arabia, the negative impact of COVID-19 was also observed in Malaysian stock market (Lee
et al., 2020). Moreover, COVID-19 has a detrimental impact on oil prices and foreign
exchange rates in addition to the Nigeria’s stock market return (Nwosa, 2021). This negative
impact of COVID-19 on stock markets has been noticed in many more countries around the
world (Chowdhury et al., 2021; Orhun, 2021; Takyi and Bentum-Ennin, 2021). However, in
certain countries, COVID-19 was found to have no effect on stock market performance, as
was the case in Ghana (Insaidoo et al., 2021).
Further, Khanthavit (2020a) discovered that the negative reaction in nearly all stock
markets occurred after media coverage and the declaration of a pandemic intensified in
January–February 2020. Just as increasingly massive and incessant information about
COVID-19 might create anxiety, his finding on the role of information corroborate the
research result and the argument of Alsedrah and Hacine Gherbi (2021) that fear is a
mediator for the effects of COVID-19 on the stock market. In other words, the negative effect
of COVID-19 on stock prices reflects investors and other stakeholders losing confidence in
the market (Hashmi et al., 2021).
The findings reported on the effects of COVID-19 on the stock market reveal some
intriguing details. First, Chinese stock market is more immune to the impact of COVID-19
than other countries (Ledwani et al., 2021) despite the fact that the first infected case was
discovered there. Even, the Taiwan stock market showed sensitivity to this outbreak as
PAR indicated by the irrational market response (Tang et al., 2021). Second, COVID-19 appears to
34,3 have impacted stock markets in both developed and emerging countries (Singh et al., 2020).
But, the COVID-19 pandemic had a profoundly more significant negative impact on
emerging market stock markets than developed ones (Harjoto et al., 2021; Harjoto and Rossi
et al., 2021). Olakojo et al. (2021) showed that negative asymmetry (length of doom > boom)
in the stock market will last longer in low-income countries (often emerging countries) than
414 in high- and middle-income countries (usually developed countries). Third, tests in main
cluster countries revealed that the stock market was more sensitive to deaths than infected
cases of COVID-19 (Apergis and Apergis et al., 2020; Louhichi et al., 2021; Zoungrana et al.,
2021). However, the number of cases still has a serious impact on developing countries
(Hashmi et al., 2021). Only Ashraf (2020) found evidence to the contrary, namely, that the
stock market reaction was higher to the number of confirmed cases than to deaths.
The adverse effects of COVID-19 for the specific firms and sectors were also documented
by researchers. Firms with green supply chain management obtained fewer negative
returns during the crisis than their counterparts in the USA (Fasan et al., 2021). Firms with
sharia securities tend to be more resilient in times of COVID-19 in Indonesia, as there were
no difference in abnormal returns and trading volume before, during and after the WHO
pandemic declaration (Ryandono et al., 2021). In sum, the pandemic has had less negative
impact on green and/or Islamic-based securities. Among sectors, industries that depend on
human mobility were the most affected by the pandemic, such hospitality (Clark et al., 2021;
Lee et al., 2021), airline (Maneenop and Kotcharin, 2020) and tourism (Liew, 2020; Wang
et al., 2021; Wu et al., 2021). Yet, the sectors affected may vary by country, e.g. financials,
trade, service and investment in Indonesia (Herwany et al., 2021) or all sectors in India
(Chaudhary et al., 2020; Shankar and Dubey, 2021). In China, adverse effects on returns at
the sectoral level, such as tourism, have also been found to last only in the short term as its
stock market is resilient to the pandemic (Wang et al., 2021; Wu et al., 2021).
In addition, the damaging effect of this pandemic was also found in stock market
volatility. Research on stock markets around the world reveals an increase in volatility
following the COVID-19 pandemic (Chowdhury et al., 2021; David et al., 2021; Mishra and
Mishra, 2021; Sheraz and Nasir, 2021; Uddin et al., 2021). According to Fakhfekh et al. (2021),
this volatility persisted in Tunisia. The volatility is indicated in the return distribution by a
rise in the standard deviation, negative skewness and high kurtosis value (Chaudhary et al.,
2020; Fakhfekh et al., 2021). Also, the persistent decline in stock returns during the pandemic
implies greater volatility (Yong et al., 2021). Several studies have attempted to identify the
source of this volatility, namely, news about the health crisis and COVID-19 spreading
(Alzyadat et al., 2021; Mishra and Mishra, 2021), distribution activities that facilitate
mobility and economic shocks (Egger and Zhu, 2021) and the implementation of movement
restriction policy that caused panic at the start of the pandemic (Chowdhury et al., 2021;
Hunjra et al., 2021). Lin and Falk (2021) demonstrated that volatility increases idiosyncratic
risk, posing a difficulty for investors in making investment portfolios.
The researchers then discovered and concluded that there were deviations from the
efficient market hypothesis during several pandemic periods in several countries (Dias et al.,
2020; Hong et al., 2021; Ozkan, 2021), including the USA, Spain, UK, Italy, France and
Germany. In this condition, the stock price does not fully reflect the available information.
Thus, the predictability of stock prices increases, creating opportunities for speculation to
obtain abnormal returns during the pandemic. This finding also implies that at some point
during the pandemic and in the stock market of certain countries, investors do not act
rationally.
 3.5.2 Spillover/contagion. The COVID-19 pandemic has influenced international A systematic
investors seeking to achieve the benefits of diversification (Siddiqui et al., 2020; Yu et al., literature
2021). The two main contagion concerns for investors are the stock market itself and the
when to invest. This is because significant changes in a stock market can affect markets
review
around the world due to increased correlation between stock markets during the pandemic
(Le and Tran, 2021). In dealing with this situation, long-term investors pay greater attention
to the risk of slower contagion, while short-term investors may focus on risks with a short
propagation period (Yu et al., 2021). 415
Contagion risk is the biggest investor consideration since COVID-19 has become a global
pandemic and caused a global economic crisis. Risk is disseminated through its effect on
global supply chain and then investors’ long-term expectations for the world economy (Yu
et al., 2021). Investors’ pessimism about future economic growth due to worsening
conditions creates panic and fear and causes irrational behavior (Nogueira Reis and Pinho,
2020; Yu et al., 2021). Thus, this should also be the government’s attention, as contagion can
have far-reaching negative implications, especially in developing markets (Le and Tran,
2021). In January 2020, China was the central risk issuer in the global stock markets when
the first wave of the COVID-19 pandemic occurred. However, the government’s efforts to be
responsive in dealing with this pandemic have yielded impressive results (Siriopoulos et al.,
2021; Yu et al., 2021). Therefore, in March, the main sources of contagion risk in global
markets shifted to Japan, the USA, Canada and South Africa. In May, new sources of risk
emerged, which were Germany, Italy, Brazil and Australia.
Several studies have shown evidence of stock market contagion across multiple
countries. Le and Tran (2021) found a financial contagion between the US stock market and
the Vietnamese and Philippine stock markets. Also, Nogueira Reis and Pinho (2020)
confirmed a contagion effect between stock markets in the US and European countries.
Siriopoulos et al. (2021) showed the Chinese stock market’s contagion effect on the European
stock market. Furthermore, Salman and Ali (2021) discovered that stock market fluctuations
in China had a bidirectional contagion effect on GCC stock markets, as these countries have
been working to diversify their economies and create new industry segments.
Similar to contagion that happens between stock markets, spillover effects are found
between sectors in a stock market (Matos et al., 2021). Shahzad et al. (2021) interpret the
evidence of spillover effect between sectors as an indication that market uncertainty due to
COVID-19 pandemic changes in the nature of sectoral connectedness. However, the common
pattern observed, particularly in China, is as follows (Qiao and Yan, 2020). Energy sector
cycles have been useful to predict health care cycles. The financial industry sector appeared
to forecast the cycles of the telecommunication and utility sectors. At the same time, the
cycles of the materials and real estate sectors could also be used to predict
telecommunication cycles. Various service sectors, such as utility, transportation and
information services, have played increasingly prominent roles in the networks of industry-
specific volatility spillovers.
3.5.3 Investor sentiment. The pandemic impacted investor sentiment, causing them to
panic and grow pessimistic about their investments (Mishra and Mishra, 2021). The
pandemic indeed created a greater risk of a stock market collapse (Liu et al., 2021). In the
literature, Google Trends was mainly used to measure investors’ attention to the COVID-19
pandemic (Deb, 2021; Ding et al., 2020; Shear et al., 2020; Subramaniam and Chakraborty,
2021). In particular, a fear index to model investor sentiment was created based on Google
Trends Search Volume Index and Google Search Volume of the word “coronavirus” for each
country (Shear et al., 2020; Subramaniam and Chakraborty, 2021). Only Deb (2021) used
Twitter data other than Google Trends to proxy investor sentiment.
PAR Previous studies found a negative relationship between the COVID-19 fear index and
34,3 their stock returns. Shear et al. (2020) found that enhanced investors’ attention to the
pandemic resulted in declining stock market returns, while Ding et al. (2020), Deb (2021); and
Louhichi et al. (2021) found that market sentiment toward the pandemic had significant
effects on stock price volatility. Lockdown policies are taken by the governments facing
COVID-19 enhanced investor positive sentiment toward stock market returns
416 (Chundakkadan, 2021). The resulting recovered COVID-19 cases attracted the optimistic
investors’ attention (Yahya et al., 2021). Thus, the stock market began to recover due to
higher investor attention and positive sentiment to buy underpriced stocks.
Some studies have identified which sectors have been most affected by COVID-19.
Nogueira Reis and Pinho (2020) mentioned that the sector indices for tourism, real estate and
automobiles were more sensitive to confirmed cases. However, high levels of investor
attention toward COVID-19 have benefited some sectors (households and government)
(Smales, 2020). The extent of the digital transformation of industries differentiates the stock
prices’ performance across sectors, with those that are more digitally transformed
demonstrating resilience to negative market sentiment on the epidemic (Ding et al., 2020).
Therefore, a rational investor should seek information on the impact of COVID-19 on the
relative stock returns of different sectors.
The investors’ fear sentiment has also been affected by the ability to process firm-specific
information for speculative investments (Xu et al., 2021). It has shown that the public is
worried about the pandemic hurting market returns, and not just the pandemic itself.
Meanwhile, short- and long-term correlations between stock indices and investor sentiment
alter over time (Jankova, 2020). When the time horizon lengthens, overvaluation or
undervaluation in the short term is gradually rectified over time.
3.5.4 Investor herding. Daily cases and death rates from COVID-19 have affected stock
returns, stock volatility and trading volumes in emerging and developing countries (Harjoto
et al., 2021). According to the efficient market hypothesis, all the relevant information is
always fully reflected in security prices (Khan et al., 2020). Thus, the stock market delivers
an updated assessment of what the investors anticipate the COVID-19 pandemics’ long-term
impact will be. How investors reacted during the growing infection period (before April) and
the stabilizing infection period (after April) was found to be caused by the varying effect of
the number of COVID-19 cases and the mortality rates, shown by movements of the equity
markets (post April) (Harjoto et al., 2021). Meanwhile, the strong overconfidence bias in
selected stock markets appears to have been more prominent in some stock markets,
implying a loss or deterioration in investor confidence (Shrotryia and Kalra, 2021).
Investors’ reactions to the COVID-19 announcement prompted the value of stocks in the
hotel and aviation industries to plummet (Anguera-Torrell et al., 2021; Maneenop and
Kotcharin, 2020), while oil prices, consumer goods and the health-care subsectors had
significant and long-term positive impact on the stock market (Abu et al., 2021; Anguera-
Torrell et al., 2021). As a result, portfolio managers may make better decisions while
understanding the impact of COVID-19 at the industry level (Anguera-Torrell et al., 2021).
Investors had a variety of reactions to the announcement of COVID-19 in the media.
During the early stages of the pandemic, investors did not react, but after human-to-human
transmissibility was verified, all the stock markets reacted badly to the news (Khan et al.,
2020). That reaction differed between short and long event windows in some countries, but
the Shanghai Composite Index was most appealing. Investors’ faith in the Shanghai Stock
Exchange has been restored during the long event window.
Herding behavior or the crowd effect is a typical psychological phenomenon, which can
be seen in the behavior of financial market investors. In fact, investors might get
information from previous investors’ activities or react to the availability of information. A systematic
Unfortunately, their anxiety could lead to herding behavior (Luu and Luong, 2020). When literature
people follow the lead of others rather than using their data or making independent
decisions, the herding effect is evident (Abdeldayem and Al Dulaimi, 2020; Khanthavit,
review
2020b).
3.5.5 Policy. Articles in this theme cluster discussed the regulations enacted by the
government in response to the pandemic and how these policies affected investors and
the market as a whole. Most countries throughout the world have opted to lockdown, close 417
businesses and schools, enforce social distancing and urge people to stay at home (Hunjra
et al., 2021; Kaczmarek et al., 2021; Phuong, 2021; Zaremba et al., 2021) because the COVID-
19 outbreak is infectious and spreads rapidly among humans. While it is agreed that
government intervention is necessary to mitigate the negative impact of COVID-19
uncertainty, researchers have documented varying results regarding the effect of these
government policies on the stock market, depending on the country, industry and even the
type of policy.
Using 49 countries, Zaremba et al. (2021) find that the closure of public transportation
systems negatively affected stock market liquidity in both developed and developing
countries. However, public information campaigns could help restore it. Meanwhile, school
and workplace closures affected stock market liquidity only in developing countries, not
developed countries (Zaremba et al., 2021). Hunjra et al. (2021) specifically show that flight
restrictions in China and Singapore, a night curfew in Japan and social distancing in
Thailand affected the stock market volatility. Besides, benefits from the government’s
policies (school closures and the stay-at-home mandate) have been reported for the travel
and leisure companies in the face of the pandemic in 52 countries by Kaczmarek et al. (2021).
Regarding the lockdown policy, researchers indicate that the market had reacted
unfavorably for some time before it was enforced (Alam et al., 2020), or at the beginning of
its implementation (Rao et al., 2021), or when it was carried out nationally (Al-Najjar et al.,
2021; Phuong, 2021) due to the investors panicking. The positive impact following
the lockdown period was more likely to be observed in environmentally and socially
responsible firms (Albuquerque et al., 2020). In addition, the lockdown policy boosted the
positive performance of firms in almost all sectors in India (Verma et al., 2021). A similar
policy called movement restriction also positively impacted the returns from all the sectors
in Malaysia (Chia et al., 2020). However, an analysis by Estrada et al. (2021) showed that a
lockdown could be harmful if it surpassed the threshold of the country’s economic structural
resilience. If it did, the country needed to revitalize its economy.
Meanwhile, Yousfi et al. (2021) note that the repercussions of this pandemic are becoming
more pronounced with economic uncertainty. In this regard, Dai et al. (2021) demonstrate
that lessening economic policy uncertainty can effectively reduce the risk of a stock market
crash. Furthermore, countries with larger fiscal rescue packages seem to have recovered
faster than those with smaller fiscal rescue packages (Seven and Yılmaz, 2021). Studying the
stock prices of firms in the hotel industry, Anguera-Torrell et al. (2021) observed the positive
reaction to the economic policies that directly impact the public budget. In sum,
the implementation of the appropriate policies will increase investor confidence that moves
the stock market in a positive direction (Zainuri et al., 2021).
3.5.6 Assets intensity. The asset intensity theme has few studies and is even recognized
as part of the market response theme by VOSviewer (see Figure 4). However, this theme is
intriguing as it highlights one of the firms’ characteristics that can affect corporate
resilience in the face of uncertainty due to the COVID-19 pandemic. For this reason, this
study separates the discussion of asset intensity from that of market responses.
PAR Studying the hospitality industry, one of the most affected sectors, Poretti and Heo (2021)
34,3 find that firms with an asset-light strategy suffered less negative abnormal returns for about
four days after the WHO declared COVID-19 be a global pandemic. This strategy leads to a
lower proportion of fixed assets, making companies more adaptable to the uncertainty
caused by COVID-19 and related policies. In other words, firms that pursue this strategy
could better protect their cash flows because they avoid many of the costs associated with
418 maintaining fixed assets.
Aside from the asset strategy, several studies also reported that asset growth, cash
amounts and firms’ capital structures explain the variability in COVID-19’s resilience. For
example, Kaczmarek et al. (2021) show that firms with higher asset growth in the previous
12 months enjoyed smaller negative stock returns. Companies that had more cash on hand,
in particular, were more immune to pandemic pressure (Ding et al., 2021). Ding et al. (2021)
and Kaczmarek et al. (2021) report evidence that firms which used debt to fund their assets
were less likely to be able to insulate themselves from the pandemic’s negative consequences
on their market-based financial performance (Ding et al., 2021; Kaczmarek et al., 2021).
However, the researchers found no difference in the negative impact of COVID-19 on stock
returns in firms with large and small total asset holdings (Ding et al., 2021; Fasan et al.,
2021).
In sum, those studies suggested that companies applying strategies that allow for
flexibility in their assets and have higher growth opportunities are more likely to adapt to
the sudden onset of a pandemic. This would be due to firms cutting expenses during
difficult times, quickly changing their operating strategies to survive in times of crisis, yet
still accessing funding from outside parties. Moreover, given no difference in stock returns
between firms with large and small asset holdings over the COVID-19 era, this asset
intensity approach may be applied across all businesses.

3.6 Lessons learned

This section discusses some of the lessons that can be drawn from analyzing the findings of
articles on the stock market during the COVID-19 pandemic. These include lessons for the
market, industry, investor, government and company, to assist them in dealing with the rest
of the COVID-19 pandemic or any comparable situations that may arise in the future.
The COVID-19 pandemic has driven the behavior of investors toward irrationality in the
market. However, when investors depend not just on information accessible in the
mainstream media or other online information sources but also on their ability to assess a
country’s policies to overcome the spread of COVID-19 and commence economic recovery,
investor rationality triumphs over irrationality. The formation of an investment portfolio is
a way for investors to deal with the pandemic in the stock market (Shrotryia and Kalra,
2021), with two factors to consider: which portfolio and when to invest (Siddiqui et al., 2020).
The selection of stocks from the sectors and markets that are minimally affected should
be looked at because they are more profitable. The health care and utility sector was the
most widely affected due to the high number of cases and deaths due to COVID-19.
The tourism industry was also severely impacted as intercountry travel bans emerged. The
lockdown policies resulted in several utility products being disrupted during their
production processes and becoming scarce in the marketplace. Real estate and automobiles
were impacted because individuals were more concerned with meeting their basic needs
rather than secondary ones. Besides, less affected countries are those that have a low
number of infected and dead cases and/or whose policies are responsive to rapid economic
recovery and investor confidence. Regarding the time to invest, investors may estimate it by
carefully examining the effectiveness and quickness of a country’s government response, as
this will affect the timing of the impact of COVID-19 on the stock market. Indeed, the effects A systematic
of the COVID-19 pandemic have both short- and long-term impacts. literature
The government’s poor handling of COVID-19, as well as the lack of coordination
between countries, have caused investor panic and fear (Matos et al., 2021). China was the
review
epicenter of COVID-19 outbreak at the beginning. Although COVID-19 first occurred in
China, the effects of the pandemic on the economy quickly and easily spread to other
countries due to their economic dependence on China. Therefore, the government’s response
to policies must be fast and precise to minimize the negative impact of the pandemic. These 419
are the success factors of the Chinese stock market in regaining the confidence of its
investors (Siriopoulos et al., 2021; Yu et al., 2021). This is because any uncertainty that is not
immediately anticipated increases the risk of the stock market falling even more
significantly due to investor panic. The government also needs to pay attention to the
impact on capital market liquidity when making policies to deal with COVID-19.
When enacting a lockdown policy, the government should do it partially, i.e. only in
regions with a high increase in COVID-19 rather than in all areas (if possible). The
government also needs to consider whether its economic structure can withstand the needs
or viability of all citizens when the lockdown is implemented. The reason is that a lockdown
can be dangerous if it exceeds the sustainability threshold level of a country (Estrada et al.,
2021). If this is the case, the government needs to revitalize its economic systems by
reducing interest rates, injecting funds into the financial market and providing various
economic recovery packages (cash backs, grants, loans and tax breaks for businesses)
(Estrada et al., 2021). Economic revitalization may be achieved by restoring the circulation of
products and services inside and across borders through infrastructure, private sector,
human resources and financial industry development (Estrada et al., 2021). The government
should also balance the implementation of COVID-19 handling policies, especially the
lockdown, with the provision of adequate information so as to minimize investor panic over
business continuity which may be disrupted due to the closure. It is also critical to provide
fiscal stimulus to keep firms going (Seven and Yılmaz, 2021). Budgeting policies that target
public health also encourage a faster recovery (Anguera-Torrell et al., 2021).
In addition, companies must be flexible when dealing with uncertain conditions, such as
during the COVID-19 pandemic. Flexibility is achieved through operating leverage with few
fixed assets, considering options for leasing fixed assets and sufficient cash holdings. In
terms of capital, companies also need to maintain their level of financial leverage because
high debt puts them at a disadvantage in times of crisis. Companies that maintain their
operating and financial leverage levels can save costs while initiating innovations to adapt
to the business environment. The importance of asset flexibility strategy and the creation of
growth opportunities in the face of this uncertainty apply to both large and small
companies. The reason is that a crisis may occur and have a broad impact without
considering the company’s size, such as happened during the COVID-19 pandemic.

4. Conclusion
This literature review aims to discover the progress of findings from previous research and
thus take lessons from the COVID-19 pandemic in the context of the stock market for the
market as a whole, investors, governments and businesses. Focusing only on empirical
research published in reputable journals based on Scimago, 89 articles have been evaluated.
This covers 2020 and 2021 as COVID-19 was designated a global pandemic on 11 March,
2020.
The distribution of articles based on the publication’s quality is relatively balanced from
Q1 to Q3 indexed journals, with only a few articles coming from Q4 indexed journals.
PAR Further, financial category journals dominate the top 10 journals in this review, while
34,3 “International” is the most common research setting employed as COVID-19 has impacted
many countries. The article keyword grouping produced six cluster themes: market
responses, spillover/contagion, investor sentiment, investor herding, policy and assets
intensity. The lessons from various elements in the stock market, i.e. the market, industry,
investors, government and companies, are thus determined based on the evaluated articles.
420 In particular, investors will seek reasonable solutions by gathering knowledge about the
spread of the COVID-19 and government policies for dealing with it. The rational behavior
of investors can be seen in their portfolio investments in a variety of sectors as well as their
consideration of the best time to invest. The government plays a significant role in calming
investor fears and maintaining the company’s viability with flexible or dynamic policies.
China emerged as the country most prepared to deal with the epidemic and its government
was quick to issue legislation that restored investor confidence. However, the vaccination
program, the administration of vaccines that have not yet reached the specified target, the
emergence of new variants (namely, Delta and Omicron) and the quarantine policy for who
have traveled abroad after several new waves of pandemics can be ideas for future research.
Future studies may also evaluate the value relevance of specific government policies on
stock markets around the world.
There are several limitations to this evaluation. First, Scopus was the only database used
to identify articles in this review. Although the scope of the Scopus database for articles in
reputable journals is relatively comprehensive (Martín-Martín et al., 2018), this does not
prevent this study from neglecting to include some other articles, especially those from
journals not indexed by Scopus. Second, using the keyword “stock market” instead of
“capital market” also precluded some articles from being reviewed. Thus, this opens up
opportunities for future research to study the effects of COVID-19 on the capital market,
rather than the stock market. Third, some articles that could not be accessed were also not
included in the review.

Notes
1. This number is obtained based on a search on 9 July, 2021.
2. Co-word analysis identifies patterns by linking words or noun phrases in the title or abstract of
the articles (Poje and Zaman Groff, 2021).

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Corresponding author
Puspita Ghaniy Anggraini can be contacted at: puspita.g@mail.ugm.ac.id

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