Abstract

The crisis of COVID-19 comes with a calamitous economic stance. The South Asian countries experience their nastiest economic performance in the last four decenniums, and a moiety of the countries are falling into recession. This paper checks the impact of the first, second and third waves of COVID-19 outbreak on the stock market indices of all the South Asian countries, including India, Pakistan, Afghanistan, Sri Lanka, Bangladesh, Maldives, Nepal, and Bhutan. The study has utilized the Event Study Methodology and results exhibit that COVID-19 decreases the mean returns of all the stock market indices and increases their volatility, which designates that Corona does influence all the stock markets of South Asia in decrementing their returns and incrementing volatility. Overall, the negative effect of the first wave of COVID-19 is not paramount across all the indices except the National Stock Exchange of India (NSE), albeit its second wave did not affect any of the stock market indices significantly. In contrast, the third wave affects the stock markets indices of Pakistan (PSX) and Afghanistan (AFX).

Key Words

Stock Asian Countries, COVID-19, Abnormal Returns, Event Study

Introduction

According to WHO (World Health Organization), the first case of COVID-19 was identified on 31 December 2019 in Wuhan, the city of China. At that, time people of China were moving towards their hometowns to celebrate the Chinese Incipient Year, which became the leading cause of the spread of this disease and turned that outbreak into a national crisis. This pandemic hit the whole economy ecumenical without anyone kenning and resulted in the factories shut down and unemployment all around the world, leaving policymakers, businesspersons, Regimes, managers, scientists, denizens, and medicos kindred in dismay. As this virus represents a Pandora’s Box, the consummate 45-days lock-down in industrial countries took everybody off-sentinel. 

Due to the quarantine in most of the industrialized countries from March to the cessation of the year 2020 and its second wave, many Philomaths and economists presage a deep recession for 2020-21. The developing countries of South Asia will have their worst financial performance of the last four decenniums. The chances of people being infected with this virus are more protuberant in these developing countries because gregarious distancing is arduous to maintain, and they have inhibited access to health care and even soap in the rural areas. Moreover, there are chances that people will get unemployed and face the nastiest inflation in the prices of rudimental commodities.

As per Efficient Market Hypothesis, any particular event should result in the vicissitude of the stock prices because investors' inefficient markets are planarity vigilant and well apprised, and it shows the effect of this information disclosure. Then, the Arbitrage pricing theory (APT) is the asset-pricing model. Its main concept is that returns of assets can be presaged by utilizing the linear relationship between the expected returns of the assets and the macroeconomic variables like a chronic disease which captures the systematic risk and plenary undiversifiable. Under these circumstances, rational investors make decisions, which are the antithesis to what is prognosticated by the standard models of finance. COVID-19 is bringing major challenges for the developing countries of South Asia because people are losing their jobs because of the lock-down situation in the country. People are panicking because of the incremented death rates and the wildest spread of this disease across the globe. 

All these unexpected and external issues can bring the stock market down, and they hold the capacity to transmute the sentiments of rational investors. Investment decisions are affected by the solicitousness and deplorable mood of the investors, and such investors get more pessimistic about the future and take less risk consequently (Kaplanski & Levy, 2010). Consequently, these negative feelings and sentiments affect investment decisions and returns of any stock market. The pandemic situation engendered by the first and second waves of COVID-19 captures the opportunity to check the impact of this disease on the stock market of affected nations of South Asian countries. 

This paper checks the impact of the first and second waves of COVID-19 on the developing stock markets of South Asia, which includes India, Pakistan, Afghanistan, Sri Lanka, Bangladesh, Maldives, Nepal, and Bhutan. Because of the short period of this outbreak, an event study is utilized to check the presence of aberrant returns after the occurrence of this outbreak in the countries of South Asia. The study reports the occurrences of the first and second waves of COVID-19 in the South Asian countries and checks its effect on the stock markets by visually examining the presence of eccentric returns. This paper denudes affluence of insight into the outbreak of COVID-19 in South Asia. 

The world's infection peak has visually examined on 3 March 2020 as presaged by the infectious model. The decision tree previses that Corona Virus is irrigating the stock market around the globe that has commenced from Western Europe. Literature is available for the developed countries, but due to the circumscribed availability of data, no insight is available for the developing countries of South Asia altogether. The goal of this study is to optically discern the replication of investors and stock markets after the advent of the first and second waves of Corona. The novelty is in shepherding the empirical research by retrieving the scientific data and conducting the experiments from the standpoints of business and science. Its main contribution in the literature of finance is by providing the facts on how the stock markets respond to the first and second wave of Corona and how it gets stable after that outbreak.

This study aims to visually perceive the impact of the first, second, and third waves of COVID-19 on the stock market performance of South Asian countries by calculating the anomalous returns. The study will withal optically discern the consequentiality of market replication by calculating the accumulated eccentric returns.

Literature Review

The impact of COVID-19 on the stock markets is one of the sultry topics in finance nowadays. Akhtaruzzaman et al. (2021) have checked how financial contagion appears between the financial and non-financial firms of G7 countries and China after this outbreak. Ashraf (2020) studies that stock market returns are declined as the number of corroborated cases has incremented. Cheema et al. (2020) have revealed that investors have lost their confidence in gold during this period of this outbreak. Chevallier (2020) has examined the impact of COVID-19 on financial markets by utilizing GARCH, VAR Models, and Susceptible infective abstracted and found consequential results as well. Ahmed has (2020) studied the Pakistani stock market and its replication of it. He finds that recuperations of COVID-19 are affecting the stock market performance significantly. COVID-19 not only affects the developed or developing nation's stock markets but additionally does affect the minute and medium enterprises of the countries and their future development in a consequential way (Berchin et al., 2020; Murphy et al., 2020). 

Kumar et al. (2020) have investigated the impact of this virus on the engendered and operations management of the companies and find that this disease put all the managers in a panic situation and caused them to make erroneous decisions under these circumstances. Burdekin and Harrison have (2021) checked the impact of the onset of COVID-19 on the stock market performance for the 80 well-kenned stock markets and found that Corona Virus does worsen the stock market performance but the impact of ascending deaths is not consistent along with all the countries. Cox et al. (2020) have found that the stock market performance of all the countries is dependent more on the sentiments of the investors in lieu of the fundamentals. Just and Echaust (2020) have examined the incremented volatility of stock markets in tardy February 2020 find kindred results. 

Both Ashraf (2020) and Alber (2020) have highlighted that stock market performance is affected more by the incrementing cases of Coronavirus than the death rates. Awadhi et al. (2020) have revealed the consequential impact of both the variables on the stock markets of China from 10 January to 16 March 2020. Adeel-Farooq et al. (2017) have identified that trade liberalization has had a positive impact on the economy of Pakistan. Sahasranamam (2021) has investigated the response of the state of India towards the pandemic of COVID-19. Earlier to it, Khan et al. (2020) have observed the paramount impact of COVID-19 cases on the stock market performance of sixteen countries by utilizing the Panel data analysis.

The first wave of COVID-19 has played a key role in affecting the stock markets of all the countries, but surprisingly, its second and third waves did not affect the stock markets significantly. Phan and Naryan (2020) have concluded that initial over-reaction of investors was thereafter the first wave of Corona, and it is conspicuous from the data until April 2020, but they further find that initial negative reaction to the incipient cases and death rate of Corona patients is followed by a positive replication. Virtually a moiety of the stock markets commenced exhibiting positive returns when the cases of Corona reached 100,000, and its death rate reaches 100. This paper is an endeavor to find the impact of the first, second, and third waves of Corona on the stock market's performance of South Asian countries. The prior work on Corona was inhibited to the first quarter of 2020; this study endeavors to consummate this gap by extracting the data from 2020 to May 2021. This would show how the investors and stock markets respond to a different wave of COVID-19.

Event Study Methodology

This paper utilizes the Event study method for checking the impact of the first and second waves of COVID-19 on the stock market performance of South Asian countries. Ball & Brown (1968) are considered among pioneers to use Event Study Methodology in Accounting and Finance disciplines. As per the event study method, when the efficient market hypothesis is valid, then any particular event should result in the transmutation of the stock prices because investors inefficient markets are plenarily cognizant and well apprised, and it shows the effect of this information disclosure. The event study methodology is widely utilized in empirical studies of finance and economics. 

Agrawal & Kamakura (1995) find the impact of celebrity endorsement in explicating aberrant stock returns. Liu et al. (2020) check the impact of COVID-19 on the stock markets of 21 leading stock markets of the world. Predicated on the subsisting literature of finance, an Event study is utilized for checking the average eccentric returns (AAR's) and cumulative average aberrant returns (CAAR's) of the stock indices of South Asian countries after the outbreak of the first, second, and third waves of COVID-19.

Data and its Sources

Third Wave of COVID-19

Results & Discussion

Figure 1

AAR after the First Wave of Covid-19

Table 7. CAAR's Change in South Asian stock from day 0 to 35 after first wave of Corona

Figure 2

CAAR after the Frist Wave of Covid-19

Table 8. Average Abnormal returns (AAR's) Change in South Asian stock from day 0 to 35 after the second wave of Corona

Figure 3

AAR after 2nd Wave of Covid-19

Figure 4

CAAR after the 2nd Wave of Covid-19