The Impact of Epidemic Outbreaks on Stock Market

The outbreak of coronavirus disease is the largest epidemic of the last 100 years and has a huge impact on the global economic system. This research paper is one of the first to study the impact of COVID-19 on stock market. By using event study approach and regression analysis the hypotheses about abnormal returns of stock indices and stocks of companies from different industries are tested. The paper provides a calculation of cumulative average abnormal returns (CAAR) for stock indices of 53 countries and 5 industries, consisting of companies listed on U.S. stock exchanges. The study found that the reactions of all five industries (Consumer Staples; Transportation & Logistics; Healthcare; Media; Oil & Gas) to the COVID-19 outbreak were significant and negative. The analysis also revealed that the effect of coronavirus on abnormal returns has increased over time. In addition, a country's location in Asia or in the Middle East negatively affects abnormal returns. Finally, the work confirmed the hypothesis that the number of cases of COVID-19 in a country has a significant effect on the cumulative abnormal returns (CAR).