global stock market essay

SYSTEMATIC REVIEW article

Covid and world stock markets: a comprehensive discussion.

• 1 Department of Management Sciences, Lahore College for Women University, Lahore, Pakistan
• 2 Department of Management Sciences, National University of Modern Languages, Islamabad, Pakistan

The COVID-19 outbreak has disturbed the victims' economic conditions and posed a significant threat to economies worldwide and their respective financial markets. The majority of the world stock markets have suffered losses in the trillions of dollars, and international financial institutions were forced to reduce their forecasted growth for 2020 and the years to come. The current research deals with the impact of the COVID-19 pandemic on the global stock markets. It has focused on the contingent effects of previous and current pandemics on the financial markets. It has also elaborated on the pandemic impact on diverse pillars of the economy. Irrespective of all these destructive effects of the pandemic, still hopes are there for a sharp rise and speedy improvement in global stock markets' performance.

Introduction

The world is experiencing the worst health and economic disaster in the shape of COVID-19 pandemic. Dealing with this pandemic is the most challenging task being faced by human beings since the Second World War ( Maqsood et al., 2021 ). Coronavirus has pushed the markets toward the danger zone. The market panic has been started. This disease is contagious even before it shows obvious symptoms. It is quite difficult to hold people in quarantine in this outbreak. That's the narrative, and we haven't gotten very far into it yet. So, the potential for market disruption because of a scary narrative is quite high.

—Robert James Shriller, Nobel Memorial Prize Winner in Economic Sciences, 2013.

The epidemiological perspectives are not required to be understood here. Currently, well-informed individuals ought to have some know-how about the basics of contagious diseases. Times of fear are also times of rumor and misinformation; knowledge is the antidote ( Baldwin et al., 2020 ). The COVID-19 outbreak was officially reported in the Wuhan City of China in December 2019 and covered all continents of this globe other than Antarctica ( Hui et al., 2020 ). COVID-19 is a distinctive black swan event, and we are unaware of its existence, expansion, breadth, depth, magnitude, and even its disappearance ( He P. et al., 2020 ; He Q. et al., 2020 ). World Health Organization (WHO) officially declared COVID-19 a pandemic on 11th March 2020 ( Cucinotta and Vanelli, 2020 ). The pandemic has severely hit global economies ( Shafi et al., 2020 ). It has disrupted the life and lifestyle of almost everyone ( Aqeel et al., 2021 ). Almost no one has been left untouched. Another pandemic of information and misinformation is keeping pace with it during this pandemic, spreading fear and anxiety ( Koley and Dhole, 2020 ). The outbreak has changed the outlook of this globe within no time at all. Human beings are struggling with the long-lasting effects of this disease and the unforgettable reality of their existence which has never happened before. The pandemic affected more than 107 million people, with around 2.3 million causalities, and the numbers of cases are escalated day by day. The alarming point is the growth factor of this disease, where 100 contaminated cases create another 10,000 within a very limited time ( Bagchi et al., 2020 ).

The people from this generation have seen wars. They have seen the collapse of the Soviet Union. They have seen extremely dangerous terrorist attacks. They have seen the burst of financial bubbles, and they have seen the effects of climate change. However, they had not seen anything like the coronavirus before. A similar case has not existed for more than one hundred years. They were not ready for it, and they did not know how to respond to it. Since it was something that no one had any prior experience with, the pandemic has also led to reconsidering some things which were always previously thought either right or wrong ( Sharma, 2021 ).

The COVID-19 pandemic has spread globally, has made millions of people sick, and triggered an international response spearheaded by the World Health Organization to stop its spread. From Wuhan, China, it spread like wildfire. The virus has now visited almost every nation in the world, bringing helplessness and death with it. None are spared, and in some way or another, almost everyone has become a victim. In a recent message, the WHO warned that the worst is yet to come. The coronavirus has not only triggered disease and death, and it has affected almost every aspect human life. There is a long list of disruptions to daily life in the cities and states with lockdown, global sporting events, weddings, social events, post-poned ceremonies; all this has elicited the global crisis. Moreover, industries worldwide have been affected; stock markets have been reported in record downfall; airlines, travel, tourism, and hospitality sectors are the major victims of this pandemic. A significant disaster is job loss in various sectors ( Koley and Dhole, 2020 ).

Crucial and groundbreaking strategies are required to protect not only human lives but also to safeguard economies and uplift economic growth and financial health. Nations are exposed to a global health crisis, the like of which has not occurred for a century. This crisis is killing human beings, enhancing human distress, and upsetting the lives of individuals. This can be considered a sort of human, social, and economic crisis ( Mishra, 2020 ). The best efforts by governments from every country have failed to halt its spread: cities were put under lockdown; people were advised to stay at home; international borders were closed; travel bans at local, national and international level were imposed; markets, schools, universities and shopping complexes were closed. Quarantine and self-isolation have been advised to stop the spread of COVID-19. The virus has triggered an unprecedented global crisis which led the WHO to provide technical guidance for government authorities, healthcare workers, and other key stakeholders to respond to community spread ( Koley and Dhole, 2020 ).

In the intermingled economies, the Covid-19 pandemic came as a global distress that affects both the demand and supply side concurrently. Rapidly growing infectivity limits labor supply and badly affects productivity, whereas supply disruptions are also caused by social distancing, lockdowns and industry closures. On the other hand, disruption on the demand side is caused by reduced consumption, unemployment, and income loss and these economic prospects result in reduced company investment. The unpredictability about the path, instance, enormity and impact of Covid-19 could create a vicious cycle of redundancy, less consumption, and business closures, leading to financial distress. To identify and determine this extraordinary shock is the key challenge for the experiential analysis of this pandemic. The unprecedented nature of COVID-19 makes it difficult to recognize its non-linear effects, cross-country spillovers, and quantify unobserved factors to compose forecasts ( Chudik et al., 2020 ).

International institutions including the FAO, ILO, IFAD, and WHO jointly declared this pandemic a global challenge to food systems, public health, trade, and industry. Overwhelming social and economic disruptions put tens of millions of individuals at risk of falling below the poverty line. According to another approximation, by the end of this year, the number of undernourished people could increase by up to 32 million, which are ~690 million at present. It also poses an existential threat to a considerable number of business ventures. The world has a 3.3 billion workforce and ~50% of which are near to being unemployed. Significant individuals are informal workers with limited access to productive assets, quality health, and the majority lack social protection. Due to lockdowns, they lost their means to earn money and became incapable of feeding themselves and their families because for most their daily food depends upon their daily wages earned. Such a devastating effect on the entire food chain has exposed the vulnerability of this pandemic. Farmers have no access to markets, nor can buy inputs or sell their output and result in a reduced harvest. In addition to market shutdown, trade limitations, border closures, and detention measures dislocate food supply chains nationally and internationally, which badly influenced a healthy diet. Small scale farmers are the soft target of COVID-19 and placed nutrition and food security of the most marginalized population under threat, as income producers fall ill, die, or otherwise lose their work ( Chriscaden, 2020 ).

It is still difficult to understand the recovery due to the development of vaccines. To understand corona's economic impact, the following charts and maps exhibit real statistics so far.

Impact on Jobs

A report published by the OECD (2020) shows the impact of COVID-19 and containment measures on OECD economies where people were prohibited from going to work, resulting in a significant drop in business activity and extraordinary job losses. In some countries, millions have been moved to reduced hours and most people worked up to ten times fewer hours. Moreover, the rate of entire job loss is also very high. Some people are more exposed to this pandemic than others. As young people and women workers are at greater risk due to less secured and unskilled jobs. They are also associated with the industries most affected by this unprecedented shock, including restaurants, cafés and tourism.

Causing Recession

Worldwide economic downturn caused by the COVID-19 pandemic forced the Organization for Economic Cooperation and Development (OECD), International Monetary Fund (IMF), and World Bank (WB) to revise their forecasts and reported a significant decline in the projected rate of growth in late 2019 and mid-2020. Such deterioration can be seen in the IMF figures in which global economic growth forecasts declined from +3.4% to −4.4% during October 2019 and October 2020. In the same way, OECD also revised its forecast and lowered the growth rate from positive 2.9% in November to −4.5% in September 2020. In June 2020, OECD anticipated the blow of another wave of infections.

Impact on Travel

The travel industry is one of those acutely damaged industries due to lockdowns, border closures, and abandoned flight operations. Airlines are not only canceling flights, but customers also restrict themselves from holidays and business trips. A recently discovered subsequent wave of COVID-19 has forced national and international airlines to promulgate new travel restrictions and tighten their policies. While providing data of 2020, Flight tracking service Flight Radar 24 reveals a huge hit in number of flights worldwide and requires a long way to recover ( Jones et al., 2021 ).

Impact on Tourism

Tourism is another badly affected industry due to this unprecedented pandemic. The World Tourism Organization, also known as UNWTO (2020) marked this pandemic as a serious threat to the travel and tourism sector. Many jurisdictions put restrictions on international travel to restrict the spread of the virus; some fully closed their borders, resulting in a massive decline in demand. In 2020, tourism reported a loss of ~1 billion tourists, equivalent to US$ 1.1 trillion in international tourism receipts. This decline in international tourism could cause an ~$2 trillion loss in global GDP, over 2% of the global GDP in 2019. While predicting a rebound in the global tourism industry, UNWTO presented an extended scenario for the year 2021 to the year 2024. According to them, global tourism will start recovery from the second half of the year 2021 but it will take 2.5 to 4 years to return to 2019.

Impact on Stock Markets

The capital markets are at the front line of any country's economy, and the stock markets are considered the indicator of any economy ( He P. et al., 2020 ; He Q. et al., 2020 ). The COVID-19 outbreak has disturbed the victims' economic conditions and posed a significant threat to the worldwide economies and their respective financial markets ( Barro et al., 2020 ; Ramelli and Wagner, 2020 ). The majority of the world stock markets have suffered in terms of trillion-dollar losses ( Lyócsa et al., 2020 ) and international financial institutions were forced to reduce their forecasted growth for 2020 and the years to come ( Boone et al., 2020 ). The root cause of this severe decline is the exposure of stock markets to several risks, for instance, the global financial crisis of 2008, which had pushed these markets in a melting position ( Dang and Nguyen, 2020 ). The current pandemic has affected the global stock markets significantly compared to the SARS virus, which was spread in 2003 as China has got tremendous development in comparison to the last 17 years and recognized as a leading economy of the world and also a global production hub, manufacturing the highly demanded technology products ( Alameer et al., 2019 ).

Effects of Previous Pandemics on Stock Markets

Scholars have argued that previous pandemics triggered fragile stock markets ( Chen et al., 2018 ) and impeded stock market participants' decision-making capacity by reducing their active involvement in stock market trading ( Dong and Heo, 2014 ). The literature has provided empirical evidence of the stock market reactions to significant systematic events. The research has shown the cyclical nature of the stock market reactions and the factors that affected the stock markets ( Keating, 2001 ). The historical performance of stock markets has been documented in the previous literature regarding influenza and other major epidemics. Similarly, the scholars have examined the influences of significant events on the stock markets, i.e., Severe Acute Respiratory Syndrome (SARS), ( Chen et al., 2018 ), natural disasters ( Caporale et al., 2019 ), corporate events ( Ranju and Mallikarjunappa, 2019 ), public news, and political events ( Bash and Alsaifi, 2019 ). Some other studies have also demonstrated that SARS in 2003 weakened the Taiwanese economy ( Chen et al., 2007 ) and regional stock markets ( Chen et al., 2018 ).

The previous studies have comprehensively examined the association between outbreaks and stock market performance. Kalra et al. (1993) investigated the disaster of the Soviet Chernobyl nuclear power plant. Delisle (2003) recognized that effects were of greater intensity after SARS (2003) than the Asian financial crisis. Nippani and Washer (2004) investigated the effects of SARS on global financial markets and found that it influenced the markets of China and Vietnam. Lee and and McKibbin (2004) reported the strong effect of SARS on human beings and financial integration. Loh (2006) explained a robust linkage between SARS and airline stocks performance in Canada, China, Hong Kong, Singapore, and Thailand and illustrated that the stocks of the aviation sector are more sensitive than non-aviation stocks. MckKibbin and Sidorenko (2006) investigated the influenza epidemic's impact on the global economy's growth by considering its diverse magnitudes like slight, moderate and intense. Moreover, Chen et al. (2007) noticed the negative effects of SARS on the hotel industry's stock prices in Taiwan. They also investigated the significant influence of SARS on the four major stock markets of Asia and China. Nikkinen et al. (2008) discovered the impact of the 9/11 incident on the global stock prices; however, the markets recovered rapidly. Al Rjoub (2009) also studied the influence of financial crisis on stock market.

Besides, Kaplanski and Levy (2010) studied the effect of aviation accidents on stock returns and established that price fluctuations are sensitive to such incidents. Al Rjoub (2011) and Al Rjoub and Azzam (2012) investigated the impact of the Mexican tequila crisis (1994), Asian-Russian financial crisis (1997–98), 9/11 incident, Iraq war (2004), financial crisis (2005), and global financial crisis (2008–09) on the stock compensation behavior in Jordan's Stock Exchange. Righi and Ceretta (2011) established the positive effect of the European debt crisis (2010) on European markets' risk aptitude, especially the German, French, and British markets. Schwert (2011) explored the variabilities in the prices of US stocks during the financial crisis. Mctier et al. (2011) found the negative impact of Flu on the intensity of trading activities and stock returns in the USA. Besides, Rengasamy (2012) examined the effect of Eurozone sovereign debt-related policy announcements, development rewards, and stock market volatility on Brazil, Russia, India, China, and South Africa. Karlsson and Nilsson (2014) found the negative impact of the 1918 Spanish flu epidemic on capital returns. Lanfear et al. (2018) conducted a study to explore the effect of cyclones on stock returns, and they observed the effect of emergencies on stock returns. Chen et al. (2018) examined the influence of SARS on Asian financial markets.

Brief Overview of Literature

Studies have elaborated on the performance of global stock markets affecting the COVID-19 outbreak ( Ahmar and del Val, 2020 ; Al-Awadhi et al., 2020 ; Liu et al., 2020 ; Zhang et al., 2020 ). The pandemic has decreased investors' confidence level in the stock market as the market uncertainty was very high ( Liu et al., 2020 ). Iyke (2020) explained that COVID-19 has robust and continual negative effects on the global economy. Ahmar and del Val (2020) used ARIMA and SutteARIMA and forecasted the short-term impact of COVID-19 on Spain's IBEX index. They further explained that SutteARIMA is the better statistical measure in forecasting such impact.

Moreover, Alam et al. (2020) explained that pandemic has greatly hit Australia's capital market right from the start of 2020. The stock market has shown a bearish trend, though some sectors were at high risk and others have performed well. The researchers have focused on initial volatility and sectoral returns in eight different sectors. They have analyzed the data using the event study method and 10-days window for the official announcements of COVID-19 events in Australia. The findings revealed that some sectors performed well on the day of the announcement. Simultaneously, some others also showed good performance after the announcement except the transportation sector, which performed poorly.

The pandemic has posed severe challenges to the global economies ( Wang et al., 2021 ) and it has also created mental health issues ( Abbas et al., 2021 ). Chowdhury et al. (2020) examined the impact of COVID-19 on economic activities and stock markets worldwide. The study has targeted 12 countries from four continents from January-April 2020 by using the panel data. The stock market impact was measured using the event study method, and economic impact was measured using the panel vector autoregressive model. The results showed the extremely negative effects of pandemic variables on stock returns. Singh et al. (2020) investigated the influence of COVID-19 on the stock markets of G-20 states. The study used an event study for measuring abnormal returns and panel data to describe the causes of abnormal returns. The data consisted of 58 days of post-COVID period news provided by international media and 120 days before the event. The findings exhibited the significant negative abnormal returns during the event days. Liu et al. (2020) also examined the pandemic's effect on the most affected countries' stock markets by using the event study. The researchers revealed the negative effects of COVID-19 on the stock markets' performance.

He P. et al. (2020) and He Q. et al. (2020) also used the event study method to explore the impact of COVID-19 on Chinese industries and stock market performance. It has been observed that some industries were severely affected by the pandemic (mining, environment etc.). However, some other industries have faced limited effects of an outbreak (manufacturing, education etc.). Machmuddah et al. (2020) used the event study method to observe consumer goods' share prices before and after COVID-19. The data about daily stock prices and stock trade volume has been collected before and after the pandemic. Significant differences have been observed between daily closing prices and stock trade volume before and after the pandemic. Liu et al. (2020) used an event study method to study the short term impact of the outbreak on the stock market indices of 21 countries strongly affected by pandemic (Italy, UK, Germany etc.). Asian countries have taken the severe negative effect of the pandemic as compared to other states. Khatatbeh et al. (2020) also applied the event study method to discover the impact of COVID-19 on some targeted countries' stock indices by employing the daily stock prices and found a significant negative impact on returns.

Al-Awadhi et al. (2020) investigated the association of pandemic and stock market outcomes in the Chinese stock market. The findings showed the effect of pandemic cases and deaths on the stock returns of different organizations. Baker et al. (2020) claimed that COVID-19 strongly affects the US stock market compared to previous epidemics, including the Spanish Flu. Eighteen market jumps were observed from February-March 2020. The market jumps were considered to be the largest ones since 1990. The causes behind such jumps were the lockdowns and production cut. Ozili and Arun (2020) described that COVID-19 uncertainty and the fear of losing profit have resulted in 6 trillion USD in the global stock market on 24th February 2020. Similarly, the S&P 500 index has faced a loss of 5 trillion US dollar. The research also demonstrated the significant influence the pandemic on the opening, highest, and lowest stock indices in the US. Ngwakwe (2020) illustrated the influence of COVID-19 outbreak on some targeted stock indices (SSE, Euronext, and DJIA) by collecting the data for 50 days before and 50 days within the pandemic. The differential effects of the pandemic were observed in different stock markets. DJIA stock returns were decreased, SSE increased, however, S&P 500 index and Euronext 100 revealed insignificant effects.

He P. et al. (2020) and He Q. et al. (2020) examined the direct effects of COVID-19 spillovers on the stock market. The daily return data has collected from China, Italy, South Korea, France, Spain, Germany, Japan and the USA. The findings showed the negative short term effects of COVID-19 on the stock indices. Zhang et al. (2020) elaborated the impact of pandemic fear on the pattern of systematic risk and country-specific risk in the global financial markets. They explained the volatile nature of financial markets and the huge impact of uncertain market conditions on financial market risk. Sobieralski (2020) evaluated the effect of COVID-19 on employment and the aviation industry. The stock returns of China and US stocks have declined at a record level. Qin et al. (2020) investigated the influence of outbreak on oil markets.

Sansa (2020) explained the association between COVID-19 recorded cases and financial markets systems of SSE and DJIA during March 2020. Aslam et al. (2020) studied the impact of COVID-19 on 56 global stock market (developed, developing, emerging, and frontier) indices by using the network method. Topcu and Gulal (2020) have discovered a huge impact on Asian markets as compared to European markets. Ashraf (2020) explained that confirmed cases more strongly affect the stock market than deaths. Czech et al. (2020) used the TGARCH model and found the negative impact of COVID-19 on Visegrad stock market indices. They discovered that stock markets were seriously affected when the disease's nature was changed from epidemic to pandemic.

Zhang et al. (2020) also investigated the influence of COVID-19 on the stock markets of 10 countries. It was concluded that European stock markets showed connectivity during the outbreak; however, US markets could not show a leading role before and during the pandemic. Okorie and Lin (2021) discovered the occurrence of financial contagion during the pandemic. Corbet et al. (2020) presented some interesting insights. They illustrated that pandemic greatly affected the companies having names related to the virus, although these companies were not related to the virus.

The current research work basically pertains to the comprehensive discussion about the past present and future of world stock markets. For the sake of achieving the research aims, it has also presented a somehow brief yet inclusive debate about the happenings in the renowned stock markets. It has focused on the major market indices belong to different regions and also it has attempted to explain the actual position of some famous indices with the help of underlying real time data based graphs. Its major contribution is presenting the diverse opinions of traditional and behavioral finance regarding the behavior of stock market participants.

A General Debate About Stock Markets Performance

The global stock markets have been reported for their record decline. On 23 March 2020 the S&P 500 Index witnessed an usual drop of 35% compared to the record high on 18 February 2020. In no time at all, the intensity of this record fall became comparable with the financial crisis of 2008, black Monday of 1987, and the great depression of October-November, 1929 ( Helppie McFall, 2011 ). Fernandes (2020) also explained that the US S&P 500 index went down to 30% during March 2020. He further described that the UK and Germany's stock markets were noticed for their worst performance than the US market. The returns of these two markets were fallen by 37 and 33%, respectively. However, the worst performers in the global stock markets were Brazil (−48%) and Columbia (−47%).

Japan's market index dropped more than 20% compared to the record high values of December 2019. S&P 500 Index and Dow Jones share points were declined by 20% in March 2020. The Nikkei Index also reported the same downfall. The Colombo Stock Exchange witnessed a 9% drop in share value and experienced three market halts during mid-March 2020. The Indonesian stock market followed a similar decline. In April 2020, the index was opened with a 64.06 points decline. The UK-FTSE index plunged by 29.72%. The DAX (Germany) index was dropped by 33.37%, CAC (France) by 33.63%, NIKKEI (Japan) by 26.85%, and SUNSEX (India) want down by 17.74% ( Machmuddah et al., 2020 ). Shanghai Composite went down to 2,660.17 points on 23rd March 2020, showing a decline of 12.49% compared to December 2019. KOSPI touched the peak level of 2,204.21 points on 27th December 2019 and dropped to the lowest point of 1,457.64 on 19th March 2020, showing a drop of 33.87%. The BSE SENSEX reported the highest points of 41,681.54 on 20th December 2019. BSE SENSEX plunged to 25,981 points on 23rd March 2020 due to the COVID-19 outbreak, demonstrating a decline of 37.66%. FTSE 100 showed an upward trend on 27th December 2019 with a record index of 7,644.90 points, but it reflected the downward trend followed by a pandemic with an index value of 4,993.89 34.67% decline. The NASDAQ 100 Index reached 8,778.31 points on 26th December 2019 and observed the negative effects of the COVID outbreak by touching 7006.92 points with a declining trend of 20.17%. Moreover, MOEX revealed a bullish trend on 27th December 2019 with an index value of 3,050.47 points and reflected the effects of COVID-19 by reaching 2,112.64 points with the corresponding decline of 30.74%.

Besides, FTSE MIB reached the record level of 24,003.64 points on 20th December 2019 and then touched 14,894.44 points due to pandemic on 12th March 2020 with a declining rate of 37.94%. Nikkei 225 demonstrated an upward trend with the peak value of 24,066.12 on 17th December 2019 and represented the lowest range of 16,552.83 points following the pandemic on 19th March 2020 with the corresponding decline of 31.21%. CAC 40 represented 6,037.39 points on 27th December 2019, consequently faced the sharp jerk of 37.80% on 18th March 2020. DAX exhibited an ascending trend on 16th December 2020 with a peak value of 13,407.66, with the corresponding decline of 8,441.71 on 18th March 2020, signifying an increase of 37.04%. Moving forward, S&P/TSX jumped to 17,180.15 on 24th December 2019 and showed the devastating effects of COVID-19 with the sharp decline of 34.64% on 23rd March 2020. Besides, FTS/JSE reflected 3,513.21 points on 20th November 2020 and affected by the outbreak with a decline of 36.37% on 23rd March 2020 (Investopedia).

However, the global stock markets regained and demonstrated a bullish trend during the days of April 2020. The S&P 500 index increased by 29% and regained the strong position it had held in August 2019 ( Cox et al., 2020 ). Shanghai Composite index further increased by 8.22% in May 2020. KOSPI index showed a bullish trend and the index increased by 27.05%. Similarly, BSE SENSEX recaptured its position and touched 33,717.62 points on 30th April 2020, representing the rise of 22.94%. FTSE 100 secured an 18.33% increase, and the index targeted 6,115.25 points on 29th April 2020. NASDAQ 100 touched 9,485.02 points on 20th May 2020 with the respective rise of 26.12%. MOEX showed an upward trend with a 74.64% increase on 13th April 2020. Also, BOVESPA regained by 23.56% on 29th April 2020 and touched 83.170.80 points. FTSE MIB upbeat and reached 18,067.29 on 29th April 2020. On 20th May 2020, NIKKEI Index climbed at 20,595.15 points, reflecting an increase of 19.62%. Moreover, CAC 40 revived by 19.61% on 29th April 2020. DAX invigorated with the 24.79% increase on 20th May 2020. S&P/TSX touched 15,228 points on 29th April 2020, FTSE/JSE recovered by 27.09% on 20th May 2020, beating the outbreak's negative effect (Investopedia).

The stock market indices worldwide have been categorized in terms of Major Stock Indices, Global Stock Indices, and World Stock Indices etc. The Major World Stock market indices as well as their respective countries have been presented in the Table 1 .

Table 1 . Major world market indices.

Graphical Representation of Some Leading Indices

Source of all figures: tradingeconomics.com .

Figure 1 represents the stock market performance of the S&P ASX 50 index of Australia. It can be seen that the index was performing well-during January 2020, when COVID-19 was at its initial phase. However, March seemed to be a nightmare, when the index plunged and reached the lowest level as COVID-19 spread rapidly and hit a majority of the nations. But the index revived during April 2020, and a gradually limited bullish trend was observed. In-spite of such revival, the index could not reach its peak as the world is still facing the 3rd wave of the pandemic.

Figure 1 . S&P ASX 50 (Australia). Source: tradingeconomics.com . Reproduced with permission.

Figure 2 exhibits the stock market conditions of DAX Germany. The stock market did perform well-until February 2020, it showed a bearish trend in March 2020, followed by a gradual increase, and finally, it realized the position as it was before the pandemic.

Figure 2 . DAX (Germany). Source: tradingeconomics.com . Reproduced with permission.

Figure 3 demonstrates the stock market situation of Dow Jones Industrial Averages, one of the USA's leading indices. The same situation was observed just like previous indices. The bullish trend was observed before March 2020, followed by the bearish trend during March-April, 2020. Index regained slowly, and revival leads to the extreme upward movements.

Figure 3 . Dow Jones industrial averages (USA). Source: tradingeconomics.com . Reproduced with permission.

Figure 4 illustrates the stock market trend of CAC 40, the index of France. The index was at its peak during February 2020. However, a sudden jerk was observed during March 2020, and the index touched the lowest points. The index recovered quite slowly, and to date, it could not recover its previous position. The fluctuations in the index can still be noticed.

Figure 4 . CAC40 (France). Source: tradingeconomics.com . Reproduced with permission.

The variations in the FTSE 100 index of Europe's market conditions can be seen in Figure 5 . The bullish trend can be observed before March 2020, followed by the extreme bearish trend. The index went to the historical lowest points during March 2020. The upward movements were started during April 2020; however, slow movements were there, and the index is still in a slow recovery phase.

Figure 5 . FTSE-100 (Europe). Source: tradingeconomics.com . Reproduced with permission.

SENSEX index is a famous stock market index of India. Figure 6 is representing its performance. In January 2020, though the index was not performing very well, it faced the effects of COVID-19 during March 2020. The extreme slow revival was observed after March, and the index remains at the same pace. However, the gradual upward trends lead the index to its highest peak in 2021, as shown in the figure.

Figure 6 . SENSEX (India). Source: tradingeconomics.com . Reproduced with permission.

Figure 7 depicts Japan's famous index, i.e., the Nikkei 225. The index was in the recovery phase during January 2020; however, a bearish trend was observed from the outbreak. After March 2020, the recovery phase was there, but static movements were observed. Nevertheless, these slow recoveries finally touched the highest peak in 2021.

Figure 7 . Nikkei-225 (Japan). Source: tradingeconomics.com . Reproduced with permission.

Figure 8 deals with the NASDAQ stock market performance, one of the USA's leading indices. During the start of 2020, its performance was below average, ultimately reaching the lowest points in March 2020 as per the COVID-19 effects. The index escalates gradually, and to date, it jumped and touched the peak level.

Figure 8 . NASDAQ (USA). Source: tradingeconomics.com . Reproduced with permission.

Referring to Figure 9 , the PSX-100 of Pakistan was performing well-before the sharp rise of COVID-19 in Pakistan. However, the month of March 2020 proved to be a terrible one; the index plunged and touched the lowest level. A slow revival was observed, which ultimately hit the highest points during 2021, as showing in the Figure 9 .

Figure 9 . PSX-100 (Pakistan). Source: tradingeconomics.com . Reproduced with permission.

The performance of the S&P 500 index, a prominent index of the USA, seems to be similar to the NASDAQ stock market index. However, before COVID and the recovery phase after March 2020 is better than the NASDAQ index. Currently, the index has reached the highest level as shown in Figure 10 .

Figure 10 . S&P 500 (USA). Source: tradingeconomics.com . Reproduced with permission.

Figure 11 exhibits the Shanghai Stock Exchange Composite index of China, the origin of the COVID-19 pandemic. The SSE index is the outperformer index of China; however, it was severely affected by the pandemic. The index plunged from the start of the outbreak up to June 2020, followed by a sharp rise and now, with the gradual increase, the index has reached the maximum points.

Figure 11 . SSE composite (China). Source: tradingeconomics.com . Reproduced with permission.

Implications for Stock Market Participants

The current study has some implications for market participants and policymakers, i.e., investors, managers, corporations, and governments. The investors must have market know how to invest their resources in favorable avenues even during the contingent market conditions, which have just happened during COVID-19. The investors can take guidance from the mangers and policymakers in this regard. In this way, investors can take rational decision making for their investments. Moreover, investors can generate their portfolios and risk management strategies. Besides, investors must focus on diversification to avoid losses during the pandemic situation.

The managers are the key stakeholders of financial markets; they have experience with stocks' risky nature during the pandemic and can take preventive measures accordingly. The mangers can increase the confidence level of investors, which lead them to make long term investments.

Governments can also play a vital role in assisting with the outbreak in tax rebates and interest-free loans. Governments can even facilitate the national markets by relaxing the lending policies and providing short-term loans on relaxing terms. Governments can conduct surveys and can assist investors in reducing their uncertainty.

Policymakers can develop successful methodologies for balancing financial investments during the outbreak. For this, they can focus on understanding the dynamics of stock markets in devising effective strategies. Besides, policymakers can integrate policies to cope-up with the financial and economic impacts of the COVID-19 outbreak. The emphasis must be on the improvement of stock market stability.

Unlocking the Future in Post-COVID-19 World

The aim of realizing sustainable growth, a big challenge for all economies, has been underscored by the novel virus. The pandemic has directed that economies are not goal-oriented in terms of their aspiration; they are required to achieve the milestones of a robust global economy. The greatest accomplishments are always achieved through the heights of determination. History is always there to provide lessons for the future. Nearly 75 years ago, amid World War II and one of Britain's most difficult hours, Winston Churchill inspired the whole nation not with the slogans to “reconsider what is achievable” but with a firm determination to “never surrender.” Now at the most difficult time of the century, we are required to continue our fight for what the world needs instead of reconsidering the sustainable development goals. This crisis requires a determined global effort to “build back better” by making a big reset to reach where we were before ( Kharas and and McArthur, 2020 ). Moreover, the leaders of the world must draw a new course of action for improving the functioning of international financial and monetary system to make it strong enough to cope with any such crisis in future ( Coulibaly and Prasad, 2020 ). The stock markets had to face the worst situation in the last 30 years, business operations have abruptly failed, and various economic sectors have been critically affected. However, the best point that came out of the COVID-19 pandemic is the businesses' pressure to be innovative and redefine their operations. One example is the tech community, which has been progressing to facilitate the community in adopting the technology to deal with the pandemic's challenges. Such technological innovations assist specific divisions of organizations or even the whole organizations to carry on their operations irrespective of the current contingent situation. Certainly, the world and the multinational business models will face diverse post-virus issues. Following the COVID-19 pandemic, the nations will observe new policies relating to restructuring and operational strategies, i.e., strategic workforce planning including remote staff planning, flexible conventions, workers proficiency, best practices and HR strategies; Crisis response and business continuity planning, risk control strategies and measures; Financial resources to weather future unforeseen events; Cloud-enabled IT infrastructure (and the attendant improved cybersecurity procedures); and the Redundant sourcing of necessities (inventory, materials and individuals), ( David, 2020 ).

The prospects of the stock markets and the economies are based on the availability and accessibility of the vaccine. The optimism about the vaccine has revitalized the investors' appetite regarding hotels, energy firms, and airlines. However, some others have been brutally affected by the pandemic and are forced to sell their respective market shares. Stock markets are largely dealing with the sentiment that tomorrow may be better than today, leading to a fundamental and perhaps enduring sea change. The development of more vaccines would pave the way for more optimism. What this result demonstrates is that while the virus is not yet beaten, it is beatable. That ray of light has lit up stock markets around the world. As usual, some stock market participants are there to look for something else to worry about ( Jack, 2020 ).

The current study deals with the impact of the COVID-19 pandemic on the global stock markets. It has focused on the contingent effects of previous and current pandemics on the financial markets. It has also elaborated on the impact of the pandemic on diverse pillars of the economy. The pandemic has severely hit the worldwide markets and posited challenges for economists, policymakers, head of states, international financial institutions, regulatory authorities, and health institutions to deal with the long-lasting effects of the outbreak. It has opened our eyes to concentrate our efforts to protect the future health of citizens and the also financial issues. In the current pandemic situation, the stock markets faced the effects of Covid-19, and this back-and-forth is ongoing. The majority of the world stock markets have suffered trillion-dollar losses ( Lyócsa et al., 2020 ). International financial institutions like IMP and World Bank have been forced to reduce their forecasted growth for 2020 and the years to come ( Boone et al., 2020 ). The global stock markets have been reported for their record decline. The month of March 2020 saw an unusual drop in most worldwide indices like the S&P 500 Index, NASDAQ, NIKKEI, SSE composite, CAC-40; DAX etc. However, the global stock markets regained and demonstrated the bullish trend during the days of April 2020. Irrespective of all these cyclical effects of the pandemic, still hopes are there for the sharp rise and speedy improvements in global stock markets' performance. Moreover, these past events have become a key for mankind to get insights for better future planning ( Su et al., 2021 ).

Behavioral vs. Conventional Finance

The two polar aspects of finance i.e., traditional finance and behavioral finance have also shed light on the psychology of investors during the COVID-19 pandemic. As far as traditional finance is concerned, investors behave rationally. The rational attitude of investors restricts them from imitating the decisions of others. Investors get the basic facts and figures about the stock markets through their own efforts, resultantly the fear of avoiding future losses compel the investors to sell their stocks and the market shows bearish trend ( Jabeen and Rizavi, 2021 ). The same has happened in the world's stock markets during the peak of pandemic. There have been sudden jerks observed around the global stock markets ( Jabeen and Farhan, 2020 ).

On the other hand, behavioral finance is supposed to consist of a set of theories which focus on the irrationality of investors. The viewpoint of irrationality of investors is the foundation of behavioral finance. The irrational aspect of investors forces them to follow the decision of other investors by setting aside their own information. In such context, investors have confidence on the decision of other investors as they feel that others may possess better information skills ( Jabeen and Rizavi, 2021 ). As a result the panic market conditions lead investors to blindly follow the others to protect their investment and market also depicts the bearish trend, the one which has been seen during the COVID-19 outbreak.

This debate has proven that both the traditional finance and behavioral finance have provided the same mechanism during the COVID-19 pandemic, irrespective of the fact that these pillars of finance deal with the opposing behaviors of investors i.e., rational and irrational. In both of the scenarios, the investors have sale their shares and resultantly the bearish trend has been observed.

Data Availability Statement

The raw data supporting the conclusions of this article will be made available by the authors, without undue reservation.

Author Contributions

All authors listed have made a substantial, direct and intellectual contribution to the work, and approved it for publication.

Conflict of Interest

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

Publisher's Note

All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article, or claim that may be made by its manufacturer, is not guaranteed or endorsed by the publisher.

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Keywords: COVID-19, stock markets, market indices, behavioral finance, SARS

Citation: Jabeen S, Farhan M, Zaka MA, Fiaz M and Farasat M (2022) COVID and World Stock Markets: A Comprehensive Discussion. Front. Psychol. 12:763346. doi: 10.3389/fpsyg.2021.763346

Received: 23 August 2021; Accepted: 30 September 2021; Published: 28 February 2022.

Reviewed by:

Copyright © 2022 Jabeen, Farhan, Zaka, Fiaz and Farasat. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

*Correspondence: Muhammad Farhan, muhammad.farhan@numl.edu.pk

Disclaimer: All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.

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The effect of COVID‐19 on the global stock market

Pattanaporn chatjuthamard.

1 Sasin Graduate Institute of Business Administration of Chulalongkorn University, Bangkok Thailand

Pavitra Jindahra

Pattarake sarajoti, sirimon treepongkaruna.

2 UWA Business School, University of Western Australia, Perth WA, Australia

This paper investigates the effect of COVID‐19 on the global stock market. Specifically, we test whether the growth in the number of confirmed cases/deaths affects market quality, measured by return, realised volatility, jumps and co‐jumps for 43 stock indices around the world. We find that an increase in the growth rate of the number of confirmed cases increases volatility and jumps while reducing return. Further, we explore whether economic, financial and political risks play any significant role in the relation between the number of confirmed cases/deaths and market quality. Overall, we find the risk from COVID‐19 overshadows these risks.

1. Introduction

In just a matter of weeks, the contagious virus COVID‐19 spread around the world, leading to a global pandemic and destructive economic impacts on an unparalleled scale (see Baldwin and Di Mauro, 2020 ; Goodell, 2020 ). Despite extensive research related to COVID‐19, our understanding of COVID‐19 and its effects on market quality are still relatively limited. The outbreak of COVID‐19 caused more frequent stock market index jumps than any other period in history with the same number of trading days (Baker et al ., 2020 ). Yet, there is minimal scrutiny of the impact of the pandemic on jumps and co‐jumps of stock indices. This paper fills this gap in the existing literature by investigating how COVID‐19 affects returns, volatility, and jumps of the stock market indices. Further, it explores whether COVID‐19 causes global stock market indices to jump with the S&P500 index. Finally, it assesses whether country risk improves or impairs the above relationships.

This new infectious disease is distinct from and much more dangerous than previous outbreaks (Alfaro et al ., 2020 ; Baker et al ., 2020 ; Jackwerth, 2020 ). Not only does it lower market returns, it also increases the volatility of the stock market (Al‐Awadhi et al ., 2020 ; Ashraf, 2020 ; Erdem, 2020 ; Ramelli and Wagner, 2020 ). Nevertheless, the impact of COVID‐19 has caused investors to suffer significant losses in a short period of time due to a very high level of risks (Zhang et al ., 2020 ). Although the COVID‐19 shock has been global, not all countries have been impacted in the same way, and they have not reacted in the same way. Some researchers identify firm characteristics which soften the adverse effects of the health crisis (Albuquerque et al ., 2020 ; Fahlenbrach et al ., 2020 ; Ramelli and Wagner, 2020 ), while others suggest political and social progress are key determinants in explaining the heterogeneous impacts of COVID‐19 on stock returns across countries (Greer et al ., 2020 ).

Stock volatility is not directly observable, but rather inherently latent. In response, several studies, such as Andersen et al . ( 2010 ), Andersen et al . ( 2011 ) and Phiromswad et al . ( 2021 ), advocate the use of so‐called realised volatilities (constructed from the summation of the squared intraday interval return) as a practical method for improving the ex‐post volatility measures. Theoretically, these realised volatilities are free from measurement error (Andersen et al ., 2003 ). In addition, Andersen et al . ( 2003 ) indicate that simple models of realised volatility outperform the well‐known GARCH and related stochastic volatility models in out‐of‐sample forecasting. In our analysis, we separate the realised volatility into continuous and discontinuous jump components by using the nonparametric techniques developed by Barndorff‐Nielsen and Shephard ( 2004 ). These components correspond to the expected and unexpected new events. Prior research indicates that financial market jumps are responsible for the majority of market volatility, especially during crisis periods (Chan et al ., 2014 ).

We contribute to the literature in several respects. First, we add to the literature that utilises high‐frequency data to capture volatility dynamics (e.g., Andersen et al ., 2003 ; Tanthanongsakkun et al ., 2018 ; Ho et al ., 2021 ; Phiromswad et al ., 2021 ). For instance, Phiromswad et al . ( 2021 ) examine co‐jumps of 54 cryptocurrencies with the Thai stock market. Wang et al . ( 2020 ) investigate the usefulness of the implied volatility index (VIX) and the economic policy uncertainty (EPU) index in forecasting future volatility for 19 equity indices, finding that the VIX is a better predictor than the EPU index during the coronavirus pandemic. Chan et al . ( 2014 ) examine whether currency jumps are more severe in emerging markets, especially during crises, while Dungey et al . ( 2014 ) use high frequency data to detect stress dates in currency markets. Our analysis complements the financial market studies of Wang et al . ( 2020 ), Chan et al . ( 2014 ) and Dungey et al . ( 2014 ), who examine the impact of crises on volatility dynamics. More specifically, by decomposing volatility into continuous and discontinuous jump components, this paper provides a novel way to understand the impact of COVID‐19 on the volatility of stock indices. This method is also less vulnerable to market microstructure noise, which is a key concern in the asset pricing literature (Andersen et al ., 2007 ).

Our findings also relate to the impact of the pandemic on the co‐movements of global markets (e.g., Akhtaruzzaman et al ., 2020 ; He et al ., 2020 ; Okorie and Lin, 2020 ). Akhtaruzzaman et al . ( 2020 ) report a significant increase in stock market correlations between China and G7 countries during the pandemic period. Similarly, He et al . ( 2020 ) document that the impact of COVID‐19 on the European and US stock markets has a backflow effect on the Asian stock markets, particularly China. Distinct from these studies, we exploit the intraday 5‐min return to construct co‐jumps of the US stock index and other stock market indices around the world.

As such, our paper is part of the emerging literature which examines the impact of COVID‐19 on financial outcomes (e.g., Al‐Awadhi et al ., 2020 ; Ashraf, 2020 ; Erdem, 2020 ; Ramelli and Wagner, 2020 ). Alfaro et al . ( 2020 ) examine the relationship between unanticipated changes in COVID‐19 infections and aggregate market returns. Baker et al . ( 2020 ) and Zaremba et al . ( 2020 ) investigate the effect of government interventions in contributing to stock market volatility. Building on this literature, our study provides novel evidence of the heterogeneous impacts of COVID‐19 on stock returns across countries.

Based on 43 5‐min intraday stock indices over the period 30 October 2019–13 May 2020, our results suggest that the COVID‐19 pandemic has exerted a negative and significant impact on market quality across the globe. In particular, we show that the pandemic negatively affects stock market returns but positively affects stock market volatility, jumps and co‐jumps. Furthermore, there is weak evidence suggesting that country risk lowers the impact of COVID‐19 on market quality.

The remainder of this paper is organised as follows. Section  2 reviews related literature and develops hypotheses. Section  3 describes the data and methodology. Section 4 presents empirical results and Section  5 concludes.

2. Literature review and hypothesis development

The efficient market hypothesis (EMH) assumes that all investors are rational and stock prices adequately reflect all available information. However, many financial anomalies (such as excess volatility and systemic under‐ or over‐valuation of stock prices relative to their intrinsic values) cannot be explained by the EMH. Behavioural finance researchers believe investor sentiment may help to explain these market anomalies. According to Black ( 1986 ) and De Long et al . ( 1990 ), there are two types of investors: informed rational investors and noise traders. Rational informed investors, who are sentiment free, form rational expectations about the expected future cash flow of asset values. In contrast, uninformed noise traders experience waves of irrational sentiment and tend to form cognitive bias expectations, causing strong and persistent mispricing. Both types of investors compete in the market and set prices and expected returns; hence, the equilibrium price reflects the opinions of both rational investors and noise traders.

External and unexpected shocks, such as a financial crisis or disease outbreak, can affect economic trends and suddenly change investors' sentiments. When the market is trending downward, investors behave more pessimistically, leading to upward revisions in volatility and lower future excess returns (Lee et al ., 2002 ). Burns et al . ( 2012 ) suggest that perceived risk and negative emotions often escalate in the initial stage of a crisis as the public responds to news reports, social media and social interaction with friends and family. Along the same line, Roszkowski and Davey ( 2010 ) document the dramatic increase in the public's perception of the risk inherent in investing during the financial crisis of 2008.

The impact of investor sentiment on the stock market during a crisis is well documented. Several empirical studies rely on VIX as a proxy for the overall attitude or tone of investors towards future cash flows and investment risk of a particular security or financial market (see, e.g., Altig et al ., 2020 ; Cheng, 2020 ; Jackwerth, 2020 ). A rising VIX implies an increased need for protection against risk and is a sign of increasing market volatility; in particular, VIX is used as a measurement of investors' fear. Other researchers focus on implied volatility from stochastic volatility models (see, e.g., Alan et al ., 2020 ; Mirza et al ., 2020 ). Nevertheless, in practice, stock volatility is not directly observable. Andersen et al . ( 2001 ) and others suggest the use of so‐called realised volatilities, constructed from the summation of the squared intraday interval return, as a practical method for improving the ex‐post volatility measures. It is free from measurement error and outperforms the well‐known GARCH and related stochastic volatility models in out‐of‐sample forecasting (Andersen et al ., 2003 ).

COVID‐19 is much more than a health crisis; it is also very much an economic crisis that has affected the lives of many individuals, families and businesses across various industries globally. The global financial markets reacted very strongly and stock market returns dropped sharply as the COVID‐19 pandemic grew (Al‐Awadhi et al ., 2020 ; Ashraf, 2020 ; Erdem, 2020 ; Ramelli and Wagner, 2020 ). However, the impact of the increasing number of deaths on the stock market remains unclear. 1

As more and more cases were diagnosed, investors became wary about the unusual uncertainty surrounding the financial markets, leading to a highly volatile and unpredictable market situation. Baker et al . ( 2020 ) note that from 24 February to 24 March 2020, there were 18 market jumps, largely due to reactions to news about COVID‐19 in the United States. Alfaro et al . ( 2020 ) show that US stock returns respond to daily unanticipated changes in COVID‐19 infections, implying declining stock market volatility as the pandemic became less uncertain. Alan et al . ( 2020 ) and Zaremba et al . ( 2020 ) demonstrate the impact of governments' policy response to the pandemic on stock market volatility. Similarly, Zaremba et al . ( 2021a ) investigate the role of non‐pharmaceutical interventions in equity market liquidity. Finally, Zhang et al . ( 2020 ) find that the number of COVID‐19 confirmed cases causes an increase in country‐specific risks in stock markets as well as systemic risks.

Globalisation has linked global economies and increased the interdependence of global financial markets. Akhtaruzzaman et al . ( 2020 ) show that listed firms across China and G7 countries have experienced significant increases in the conditional correlations regarding market returns during the pandemic. This finding is supported by Okorie and Lin ( 2020 ), who suggest a fractal contagion effect of COVID‐19 on the stock market. They also highlight that this fractal contagion effect vanishes in the middle and long run for both stock market return and volatility. Likewise, He et al . ( 2020 ) argue that the impact of COVID‐19 on stock markets has bidirectional spillover effects between Asian countries and European and American countries. Nevertheless, there is no evidence to suggest that COVID‐19 has a negative impact on these countries' stock markets greater than the global average, as measured by the S&P Global 1200 index. In contrast, Tokic ( 2020 ) suggests that COVID‐19 will accelerate the trend of de‐globalisation and de‐dollarisation. Consistent with this finding, Zhang et al . ( 2020 ) suggest that countries respond differently to national‐level policies and the general development of the pandemic; specifically, they show that the US stock market has failed to take a leading role in this regard.

In view of the above discussion, the COVID‐19 outbreak has resulted in exaggerated fear, uncertainty and pressure on stock markets. Consistent with the EMH, market participants incorporate news about COVID‐19, especially the number of confirmed cases/deaths, into their valuation (Al‐Awadhi et al ., 2020 ; Ashraf, 2020 ; Erdem, 2020 ; Ramelli and Wagner, 2020 ). Nevertheless, the stock market seems to overreact to such news, resulting in stock market jumps and higher volatilities in the short run (Ashraf, 2020 ; Baker et al ., 2020 ; Okorie and Lin, 2020 ). There is some evidence to suggest that the spillover effect of COVID‐19 impacts global economies (Akhtaruzzaman et al ., 2020 ; He et al ., 2020 ; Okorie and Lin, 2020 ). Thus, we hypothesise:

H1: If COVID‐19 induces uncertainty in the stock market, then the increase in the number of COVID‐19 confirmed cases/deaths should increase volatility, jumps and co‐jumps while reducing stock returns.

The EMH suggests that competition among knowledgeable participants leads to a situation where stock prices incorporate all publicly available information. Consistent with this notion, research at the firm level suggests that the stock market reacts mostly to firms' pre‐existing conditions that affect their ability to endure the crisis. Firms with less leverage (Ramelli and Wagner, 2020 ), more cash holdings (Alfaro et al ., 2020 ; Ding et al ., 2020 ) and greater financial flexibility (De Vito and Gómez, 2020 ; Fahlenbrach et al ., 2020 ) experienced less negative stock returns during the COVID‐19 pandemic. Similarly, firms with better corporate social performance, as measured by environmental and social (ES) ratings, could suffer a lower decline in performance during a pandemic (Albuquerque et al ., 2020 ).

Other researchers explore how aggregate stock market returns across the world are responding to the COVID‐19 pandemic. For instance, Liu et al . ( 2020 ) examine the short‐term impact of the coronavirus outbreak on 21 leading stock market indices using an event study approach, finding that the COVID‐19 outbreak has adverse impacts on stock indices' abnormal returns. In addition, their panel fixed‐effect regression results suggest that COVID‐19 increases stock investors' fear and creates pessimistic sentiment regarding future returns. Gormsen and Koijen ( 2020 ) analyse investors' expectations about economic growth evolving across horizons in response to the pandemic and subsequent policy responses, revealing that the US fiscal stimulus (around 24 March 2020) boosted the stock market and long‐term growth but did little to increase short‐term growth expectations.

Previous studies also suggest that fiscal capacity shapes the degree to which countries can respond effectively to the pandemic and hence how stock markets respond. Countries whose fiscal response would be constrained by debt might be thought to be more vulnerable to a pandemic. In line with this notion, Ding et al . ( 2020 ) show that stock markets in richer economies, as measured by GDP per capita, have weathered the pandemic better than those in poorer economies. Gerding et al . ( 2020 ) also consider the relationship between corporate characteristics and stock price reactions. Using individual stock‐level data from more than 100 countries, they find that stock market responses were less negative in countries with higher fiscal capacity (i.e., lower debt‐to‐GDP ratios). Greppmair et al . ( 2020 ) suggest that during the COVID‐19 pandemic, short sellers have been trading on a combination of a firm's liquidity and a government's fiscal capacity. In addition, they find short‐selling activity to be focused on illiquid companies headquartered in countries with a low credit rating. However, some suggest that not all debt capacity variables impact the effectiveness of interventions and policies at curbing the pandemic. Zaremba et al . ( 2021a , 2021b ) show equity investors seem to factor only labour market conditions in the potential risks associated with the spread of the pandemic. They argue that unemployment has a negative impact on consumption, thus directly affecting the performance of the stock market. To reinvestigate the role of the debt capacity variable during the pandemic, we incorporate the debt capacity variables and control for unemployment. Economic risk denotes a country's ability to pay back its debts. A country with strong economic health should provide more reliable investment than a country with weaker finances. We thus propose the following:

H2: If a country with low economic risk 2 implies stronger fiscal capacity, then the country should experience less decline in stock indices and lower stock volatility and jumps during the pandemic.

Financial risk is also an important determinant of a country's fiscal capability. It is often defined as a country's ability to finance its trade debt obligations. Since a country's capability to generate foreign exchange directly affects the capacity to repay foreign debt, we expect that:

H3: If a country with low financial risk 3 implies stronger fiscal capacity, then the country should experience less decline in stock indices and lower stock volatility and jumps during the pandemic.

Previous studies suggest that national‐level political characteristics are important for crisis management and recovery (Bosancianu et al ., 2020 ; Greer et al ., 2020 ). In times of crisis the people turn to the state for leadership and unified action, and thus one may suppose that a country requires more political institutions with centralised power to take forceful action to control the spread of the pandemic (Zaremba et al ., 2021a , 2021b ). Consistent with this argument, Ding et al . ( 2020 ) find that a country with greater state power, relative to the power of individuals, experienced smaller stock price declines during the COVID‐19 pandemic. In contrast, Capelle‐Blancard and Desroziers ( 2020 ) show the country's legal origin appears to have had no influence on stock market responses in 74 countries from January to April 2020.

On the other hand, some may argue that legitimacy, credibility and the trust people have in government are necessary for the people to respond through collaborative engagement with public authorities to address crises (Bosancianu et al ., 2020 ; Greer et al ., 2020 ). Countries with greater press freedom can benefit from better information flow and public trust. This notion is in agreement with Painter and Qiu ( 2021 ) and Barrios and Hochberg ( 2020 ), who find that political beliefs determine the perception of risk associated with COVID‐19 and health‐related decisions. In a similar vein, using a panel regression analysis of 75 countries, Erdem ( 2020 ) shows that the adverse effects of COVID‐19 on the stock market are lower in freer countries. 4 Pástor and Veronesi ( 2013 ) examine the impact of political uncertainty on stock returns, identifying that political uncertainty causes serious panic in the stock market, especially when the economy is weak.

At the same time, the spread of the pandemic might reduce the political tensions in a country, as saving lives take precedence over threats posed by other groups. However, as time goes by, the pandemic may aggravate existing conflicts and trigger some forms of social disorder. This notion is consistent with that of Sharif et al . ( 2020 ), who document an unprecedented increase in geopolitical risk levels in the US driven by the COVID‐19 outbreak. 5

Overall, there is no clear pattern across countries regarding the relation between political characteristics and stock market responses. We hypothesise that a country with less political stability, i.e., high political risk, may potentially destabilise financial markets and exacerbate crises. Thus, we hypothesise:

H4: Countries with high political risk 6 experience higher stock volatility and jumps, and lower returns during the COVID‐19 pandemic.

Country risk is an important factor affecting the debt service capacity of borrowing countries. It often refers to the political, economic and financial risks that are unique to a specific country, and which might lead to unanticipated investment losses. In a broader sense, country risk is the degree to which political and economic unrest affect the securities of issuers doing business in a particular country. Prior research suggests that short sellers focus on less liquid companies headquartered in countries with a low credit rating (Greppmair et al ., 2020 ). Thus, we hypothesise:

H5: Countries with high country risk 7 experience higher stock volatility and jumps, and lower returns during the COVID‐19 pandemic.

Overall, it appears that stock markets integrated both new information about COVID‐19 and pre‐existing conditions that affected firms' ability to endure the crisis. Nevertheless, there is scant analysis of the impacts on the jumps of stock market returns. This paper attempts to provide the first empirical insights into the COVID‐19 pandemic and its effects on jumps and co‐jumps across countries.

3. Data and method

3.1. data and variables.

To construct our sample, we retrieve 5‐min intraday stock indices during the period 30 October 2019 to 13 May 2020 from Datascope provided by the Refinitiv database. The daily COVID‐19 data are from the European Centre for Disease Prevention and Control (ECDC). The ECDC reports the numbers of new COVID‐19 cases and deaths daily. The variables COVID and Death are the daily growth rates in the cumulative COVID‐19 confirmed cases and deaths, respectively.

Following the literature, such as Andersen et al . ( 2003 ), Chan et al . ( 2014 ), and Tanthanongsakkun et al . ( 2018 ), we utilise 5‐min interval returns to minimise the measurement error resulting from a decrease in microstructure biases. The return of the stock index is defined as the following:

where r t,j denotes the j th 5‐min return for a stock index during day t , M denotes the total number of 5‐min return intervals during any trading day, and R ( t ) defines the daily return on day t , derived from the 5‐min stock index.

The frequency of stock market index jumps during COVID‐19 could be considerably higher than other previous disease outbreaks (Baker et al ., 2020 ). To capture this unprecedented stock market reaction to COVID‐19, 8 we follow the analysis in Andersen et al . ( 2007 ) by decomposing the realised volatility into separate continuous and discontinuous (jump) components based on the bipower variation measures proposed by Barndorff‐Nielsen and Shephard ( 2004 , 2006 ) (see also Andersen et al ., 2010 , 2011 ; Chan et al ., 2014 ; Tanthanongsakkun et al ., 2018 ).

The volatility over the active part of the trading day t is measured by the quadratic variation

The first integrated variance term represents the contribution from the continuous price path, where N t gives the number of jumps over day t , and ∑ j = 0 N t k t , j 2 accounts for the corresponding contribution to the variance from the within‐day jumps. Hence, in the absence of jumps, the quadratic variation is simply the integrated volatility of the continuous sample path of the cumulative return process:

The components of Equation ( 2 ) are not directly observable. Instead, following prior literature, such as Andersen and Bollerslev ( 1998 ) and Andersen et al . ( 2003 ), non‐parametric daily realised volatility, RV ( t ), is defined using high‐frequency intra‐daily square returns as:

As suggested by Andersen and Bollerslev ( 1998 ) and Andersen et al . ( 2003 ), the realised volatility converges uniformly in probability to the quadratic variation process as the sampling frequency goes to infinity. That is, the realised volatility estimator does not consistently estimate integrated volatility as the measure captures both the continuous and discontinuous components of volatility. Thus, the biopower variation measures developed by Barndorff‐Nielsen and Shephard ( 2004 , 2006 ) are used to disentangle the two components of the quadratic variation process. In particular, they show that the bipower variation, BV ( t ), converges to the integrated volatility, IV (t), for M  → ∞:

Although the use of very high frequency financial price data could increase the precision of the biopower variation estimate, it can potentially be seriously contaminated by market microstructure noise. To diminish the effects of the local serial correlation induced by microstructure noise, Huang and Tauchen ( 2005 ) suggest using staggered observed returns in the biopower variation estimate:

where μ 1 = 2 π ≅ 0.79788 . The bipower variation measure defined above involves an additional stagger relative to the measure originally considered in Barndorff‐Nielsen and Shephard ( 2004 ), which makes it robust to certain types of market microstructure noise.

Combining the results in the previous equations, the difference between the realised variation and the bipower variation consistently estimates the jump contribution of the quadratic variation process, that is:

Following prior research, such as Huang and Tauchen ( 2005 ), Andersen et al . ( 2007 ) and Tanthanongsakkun et al . ( 2018 ), we consider small changes as measurement errors or part of the continuous sample path process and treat the large values of the changes as the significant jump component. To determine if a movement is a significant jump on day t , we compute the Z statistic as follows:

This follows an asymptotically standard normal distribution under the null hypothesis of no within‐day jumps, where:

Based on the significant jump detection test statistic, the realised measure of the jump contribution to the quadratic variation of the price process is then measured by:

where I (∙) denotes the indicator function and Ф α refers to the inverse of the standard normal distribution with a critical value of α .

Accordingly, we define integrated variance, CV ( t ), such that the non‐parametric measures for the jump and continuous components add up to realised volatility:

Clearly, the significant jump detection test requires a choice of α . Following prior studies, such as Andersen et al . ( 2010 ), Andersen et al . ( 2011 ) and Chan et al . ( 2014 ), we use a critical value of α  = 0.99.

It has previously been observed that the financial contagion follows a similar pattern to that of COVID‐19 (Akhtaruzzaman et al ., 2020 ; He et al ., 2020 ; Okorie and Lin, 2020 ). In addition, US markets were one of the main sources of a spillover effect to other markets (Syriopoulos et al ., 2015 ). To assess this pattern, we construct a co‐jump variable by summing the number of occurrences when both the stock index and S&P500 display significant jumps on a particular day.

Countries with greater economic development might be thought to be less susceptible to a pandemic (Ding et al ., 2020 ). Similarly, countries with a lower octogenarian population might also be less susceptible. To capture these potential effects, we include GDP and percentage of population aged above 65 ( Population ). The GDP and population data are from The World Bank for the year 2018. The GDP data are in current US dollars and are converted from domestic currencies using single year official exchange rates.

Country risk could be an important factor to explain the variation in stock markets across countries (Greer et al ., 2020 ; Greppmair et al ., 2020 ). We use country risk indices (composite risk rating index, political risk rating index, economic risk rating index, financial risk rating index, and unemployment risk rating) from Political Risk Services' International Country Risk Guide (ICRG) by the PRS Group.

According to ICRG, the composition risk index comprises 22 variables, representing three major components of country risk, namely economic, financial and political. There are five variables representing each of the economic and financial components of risk, whereas the political component is based on 12 variables. The economic risk rating measures a country's current economic strengths and weaknesses and reflects a country's ability to finance its official, commercial and trade debt obligations. Similarly, the financial risk rating reflects the ability and willingness of a country to service its trade and foreign debt obligations. Finally, the political risk rating measures the political stability of a country, which affects the country's ability to service its financial obligations. The political and the composite (financial and economic) risk indices are each based on 100 (50) points, and range from 0 to 100 (50). In all cases, the lower (higher) the risk points, the higher (lower) the associated risk. Thus, to allow a more intuitive interpretation, we define countries as having high risk factors if their risk rating points are within the first quartile of high‐risk factors, and construct Politic , Fin , Econ and Com dummy variables, representing political risk, financial risk, economic risk and the composition risk index, respectively. Each variable takes the value of 1 for countries with high‐risk factors and 0 otherwise.

Table  1 provides summary statistics regarding the cumulative number of COVID‐19 confirmed cases/death, daily growth rates and country risk indices in Panel A, and market quality in Panel B. Several counties have relatively high composite risk ratings (low risk), such as the United States, Italy and Spain. However, the United States has the highest number of confirmed cases and death. Italy and Spain, on the other hand, have the highest growth rates of confirmed cases and deaths, respectively. Yet, the market quality measures are all positive for the United States, while the market quality measures of several counties have mixed responses to the COVID‐19 pandemic information. It is therefore interesting to formally test the relation between market quality and severity of COVID‐19 given each country's risks such as economic, finance and political risks in the next section.

Summary statistics

Panel A reports the number and the growth of confirmed cases, deaths, and risk ratings (Composte, Economic, Finance and Political risk ratings) for each country. The average daily return, realised volatility, jumps and co‐jumps with S&P500 are reported in Panel B. Our sample encompasses 30 October 2019 to 13 May 2020.

3.2. Methodology

To examine the impact of changes in COVID‐19 confirmed cases/deaths on market quality, we use high‐frequency data on daily stock indices to obtain a measurement of market quality. The following baseline model is used:

where the dependent variable, Y , is market quality and proxied by the return, realised volatility, jumps and co‐jumps. Our key independent variables is COVID , which is either (i) daily growth in total confirmed cases, (ii) daily growth in total cases of deaths or (iii) both daily growth in total confirmed cases and deaths caused by COVID‐19. Control comprises control variables, such as GDP, population, unemployment, one period lag growth rate in the cumulative number of confirmed COVID‐19 cases/deaths, one period lag stock return, and one period lag realised volatility.

Next, to understand how the country risk and its components (i.e., economic, political and financial) influence the relation between COVID‐19 and market quality, we repeat our analyses with additional variables capturing different aspects of country risk. These include Econ , Politic , Fin and Com , representing economic risk, political risk, financial risk and the composition risk index, respectively. We define Econ as a dummy variable that is equal to one if the country has high economic risk, and zero otherwise; Politic as a dummy variable that is equal to one if the country has high political risk, and zero otherwise; Fin as a dummy variable that is equal to one if the country has high financial risk, and zero otherwise; and Com as a dummy variable that is equal to one if the country has high composite risk, and zero otherwise. Finally, we also include the interaction terms between these risks and the growth in the number of confirmed cases and deaths. To explore the impact of the country risk on the relationship between COVID‐19 and the stock market, we run the following regression:

where the dependent variable, Y , is market quality and proxied by the return, realised volatility, jumps and co‐jumps. COVID is as defined for Equation ( 12 ). The key explanatory variables are RISK and its interactions with COVID . RISK represents either Econ , Politic , Fin or Com . Control comprises the same variables as for Equation ( 12 ).

4. Empirical results

Table  2 reports the baseline regression results of panel data for 43 stock indices around the world. The results suggest that COVID‐19 (i.e., the growth in the number of confirmed cases) has a positive and a significant impact on financial volatility, jumps and co‐jumps, but a negative impact on financial returns. This finding is in line with previous studies that also identify the adverse effect of COVID‐19 on stock market quality (Alan et al ., 2020 ; Ashraf, 2020 ; Baker et al ., 2020 ; Ramelli and Wagner, 2020 ). This finding implies that, during the COVID‐19 pandemic, market participants incorporate news about the pandemic into their valuation. Another possible explanation for this finding is that the COVID‐19 pandemic changed the way market participants perceive risk, which results in an increased volatility of markets due to more homogeneous beliefs of market participants who expect higher levels of risk (Burns et al ., 2012 ). Furthermore, the coefficient of COVID in the co‐jumps model is positive and significant, suggesting a possible spillover effect of the pandemic. When the number of confirmed cases increases, stock market indices around the world appear to jump with the US stock market. These results are consistent with findings of spillover effects between Asian countries and European and American countries (Akhtaruzzaman et al ., 2020 ; He et al ., 2020 ; Okorie and Lin, 2020 ). In contrast, the growth rate of cumulative deaths only has a positive impact on the realised volatility model. This result may be explained by the fact that the market participants are already pricing the effect of the pandemic by using new confirmed cases (Ashraf, 2020 ). To ensure that our results are not driven by multicollinearity between the daily growth rate in confirmed cases and the daily growth rate in deaths, we also run two separate regressions with each of these two variables representing COVID‐19 infection. 9 The results of growth in death/cases remain similar. Furthermore, our regressions include one period lag in the growth rate of the cumulative number of confirmed COVID‐19 cases/deaths, which capture the impact of past confirmed cases/death growth rate on the current stock market performance. Thus, our results remain similar and are unlikely driven by historical growth rate of COVID‐19 cases/deaths.

Baseline panel regression of the relation between COVID‐19 cases/deaths data and market quality

This table reports results from our baseline panel regression, where dependent variables are daily return (Return), daily realised volatility (RV), and jumps and co‐jumps with S&P500. Our key variables of interest are the growth rate of cumulative confirmed cases ( COVID ) and the growth rate of cumulative death cases ( Death ). We also control for the percentage of the population aged above 65, GDP and unemployment risk. For return and realised volatility, we also control for lagged return and lagged RV. Our sample encompasses 30 October 2019 to 13 May 2020. The robust standard errors are reported in parentheses. ***, **, * indicates significance at the 1, 5 and 10 percent levels, respectively.

Table  3 reports the effect of economic risk on the relation between the growth in COVID‐19 confirmed cases/deaths and market quality. Consistent with the baseline model, COVID‐19 has a significant impact on market quality. Surprisingly, in all the models, we fail to highlight the impact of economic risk on market quality when there is an exogenous economic shock from the pandemic. This finding is contrary to previous studies that examine the impact of the pandemic at the firm level, which suggests that stock markets in richer economies suffer less during the crisis (Ding et al ., 2020 ). This inconsistent finding could be due to different samples, periods of study, level of analysis and control variables. Unlike previous studies, we run the analysis at the aggregate country level. In addition, we also control for the unemployment factor, which appears to significantly influence the country‐level financial immunity to the pandemic (Zaremba et al ., 2021a , 2021b ). Though the economic risk may influence the country's ability to pay back its debts, it indirectly affects the performance of the stock market. For this reason, this information may not be priced in by stock market investors.

Effect of economic risk on the relation between COVID‐19 cases/deaths data and market quality

This table reports results from our panel regression, where dependent variables are daily return (Return), daily realised volatility (RV), and jumps and co‐jumps with S&P500. Our key variables of interest are the growth rate of cumulative confirmed cases ( COVID ) and the growth rate of cumulative death cases ( Death ). We also control for the percentage of the population aged above 65, GDP and unemployment risk. For return and realised volatility, we also control for lagged return and lagged RV. Our sample encompasses 30 October 2019 to 13 May 2020. The robust standard errors are reported in parentheses. ***, **, * indicates significance at the 1, 5 and 10 percent levels, respectively. Econ is a dummy variable equal to one for a country with a high economic risk rating, zero otherwise.

Previous studies suggest that country‐level political characteristics can play a role in explaining the stock market reaction to COVID‐19 (Bosancianu et al ., 2020 ; Ding et al ., 2020 ; Erdem, 2020 ; Greer et al ., 2020 ). In line with these studies, we repeat our analyses considering political risk (Table  4 ); the coefficients for COVID‐19 confirmed cases remain significant in all models, while confirmed death is only significant in the realised volatility models. This result is consistent with our main finding. Our focus, however, is on the interaction term between COVID and political risk. This interaction term shows the marginal effect of COVID on market quality when a country has high political risk. The regression analysis in Table  4 shows the interaction term for the jump model is negative and statistically significant. 10 This suggests that countries with low political stability experienced lower volatility in stock indices as the number of COVID‐19 cases grew. A possible explanation for this might be that during the pandemic, people turned to the state for leadership and unified action, and thus countries with centralised power are likely to have taken forceful or appropriate action to prevent the spread of the virus, resulting in less panic in the stock market. This finding is supported by Ding et al . ( 2020 ), who find that countries with civil and socialist legal traditions experienced less decline in stock prices than those with a common law tradition. Along similar lines, Zaremba et al . ( 2021a , 2021b ) points out that countries with less freedom of expression were better able to cope with the adverse consequences of the pandemic.

Effect of political risk on the relation between COVID‐19 cases/deaths data and market quality

This table reports results from our panel regression, where dependent variables are daily return (Return), daily realised volatility (RV), and jumps and co‐jumps with S&P500. Our key variables of interest are the growth rate of cumulative confirmed cases ( COVID ) and the growth rate of cumulative death cases ( Death ). We also control for the percentage of the population aged above 65, GDP and unemployment risk. For return and realised volatility, we also control for lagged return and lagged RV. Our sample encompasses 30 October 2019 to 13 May 2020. The robust standard errors are reported in parentheses. ***, **, * indicates significance at the 1, 5 and 10 percent levels, respectively. Politic is a dummy variable equal to one for a country with a high political risk rating, zero otherwise.

Table  5 focuses on the impact of fiscal capacity on stock market returns during the COVID‐19 crisis. We find that the coefficients for the interaction terms between COVID and financial risk are insignificant in the full models. However, when we examine only the confirmed COVID‐19 cases, the interaction term is negative and significant in the return model. 9 This implies that countries with high financial risk were able to ameliorate the adverse effects of COVID‐19 on market returns. These results are consistent with other studies (Gerding et al ., 2020 ; Greppmair et al ., 2020 ). This result may be explained by the fact that countries with greater financial flexibility are more able to fund an appropriate stimulus package, which is used to offset the effects of the pandemic.

Effect of financial risk on the relation between COVID‐19 cases/deaths data and market quality

This table reports results from our panel regression, where dependent variables are daily return (Return), daily realised volatility (RV), and jumps and co‐jumps with S&P500. Our key variables of interest are the growth rate of cumulative confirmed cases ( COVID ) and the growth rate of cumulative death cases ( Death ). We also control for the percentage of the population aged above 65, GDP and unemployment risk. For return and realised volatility, we also control for lagged return and lagged RV. Our sample encompasses 30 October 2019 to 13 May 2020. The robust standard errors are reported in parentheses. ***, **, * indicates significance at the 1, 5 and 10 percent levels, respectively. Fin is a dummy variable equal to one for a country with a high financial risk rating, zero otherwise.

To evaluate how country risk shapes stock price movements in response to the COVID‐19 pandemic, we retest our baseline model by using composite risk as a proxy for country risk (Table  6 ). The composite risk is a simple function of the economic, political and financial risk indices. Consistent with our baseline model, the coefficient of COVID is negative and significant for market return and positively related to realised volatility, jumps and co‐jumps of the stock indices. The interaction terms between the COVID‐19 confirmed cases, deaths, and the composite risk index are negative and significant for the realised volatility models. 11 This may suggest that countries with low stability overall experience lower volatility in their stock indices. Although this result is rather surprising, one explanation is that in countries with low stability, people often must rely on themselves and react to the pandemic sooner, thus resulting in a lower volatility in the markets. This is also consistent with Abuzayed et al . ( 2021 ) who find that developed markets transmitted and received more marginal extreme risk during the COVID‐19 pandemic. Unfortunately, for other measures of market quality, this study finds a weak association with country risk. Thus, it is not clear whether stock markets in richer economies, more indebted countries or with more state power have reacted differently to COVID‐19. A possible explanation for this result is that economic and political risks can be intertwined. For instance, a country with strong economic health may not be a good candidate for investment if the political climate is unwelcoming to outside investors.

Effect of composite risk on the relation between COVID‐19 cases/deaths data and market quality

This table reports results from our panel regression, where dependent variables are daily return (Return), daily realised volatility (RV), and jumps and co‐jumps with S&P500. Our key variables of interest are the growth rate of cumulative confirmed cases ( COVID ) and the growth rate of cumulative death cases ( Death ). We also control for the percentage of the population aged above 65, GDP and unemployment risk. For return and realised volatility, we also control for lagged return and lagged RV. Our sample encompasses 30 October 2019 to 13 May 2020. The robust standard errors are reported in parentheses. ***, **, * indicates significance at the 1, 5 and 10 percent levels, respectively. Com is a dummy variable equal to one for a country with a high composite risk rating, zero otherwise.

5. Conclusion

We have examined the impact of COVID‐19 on financial markets around the world by utilising intraday data and the Barndorff‐Nielsen and Shephard (2004) nonparametric jump detection technique. To this end, we have used stock return, realised volatility, jumps and co‐jumps as a proxy for market quality and we have explored whether country risk plays a significant role in the relation between COVID‐19 and market quality. The outcomes of our empirical investigation underline the fact that: (i) the growth in cumulative COVID‐19 confirmed cases amplifies realised volatility and jumps while reducing returns; (ii) the impact of COVID‐19 on volatility is weaker in high political risk countries; and (iii) the impact of COVID‐19 on market return is stronger in high financial risk countries. Our findings have important implications for financial market participants. This study provides insights about the stock market response to the pandemic and how country characteristics play an important role in shaping the stock market response to COVID‐19‐induced financial market instability. Future research could potentially evaluate different jump detection techniques for extremely volatile periods similar to the COVID‐19 pandemic.

We would like to thank Professor Jing Shi (Editor), and an anonymous reviewer for their valuable comments and suggestions. This research was funded by Chulalongkorn University under the Ratchadapisek Sompoch Endowment Fund through the Center of Excellence (CE) in Management Research for Corporate Governance and Behavioral Finance and Sasin School of Management through SASIN Major Grant for a research program.

1 For instance, Ashraf ( 2020 ) suggests that stock markets react strongly with negative returns to growth in confirmed cases; however, response to the growth in deaths is not statistically significant. Al‐Awadhi et al . ( 2020 ) and Erdem ( 2020 ) indicate that both the daily growth in total confirmed cases and in total deaths caused by COVID‐19 have significant negative effects on stock returns.

2 We use the economic risk index from Political Risk Services' International Country Risk Guide (ICRG) by the PRS Group. It reflects a country's ability to finance its official, commercial and trade debt obligations by using five variables, namely GDP per head, real GDP growth, annual inflation rate, budget balance as a percentage of GDP, and current account as a percentage of GDP.

3 We use the financial risk index from ICRG by the PRS Group. It reflects a country's ability to finance through inflows of foreign exchange by using five variables, namely foreign debt as a percentage of GDP, foreign debt service as a percentage of exports in goods and services, current account as a percentage of exports in goods and services, net liquidity as months of import cover, and exchange rate stability.

4 Erdem ( 2020 ) uses the Human Freedom Index 2019 from Freedom House as a proxy for the level of a country's freedom. This index adds scores of 10 political rights indicators and 15 civil liberties indicators.

5 Sharif et al . ( 2020 ) use the GPR index as a proxy for geopolitical risk. This index is constructed based on news related to geopolitical events. The number of words related to geopolitical risk are counted each day in each newspaper to calculate the daily GPR index.

6 We use the political risk index from ICRG by the PRS Group. It reflects a country’s political stability by using 12 variables, namely government stability, socio‐economic conditions, investment profile, internal conflict, external conflict, corruption, military in politics, religious tension, law and order, ethnic tensions, democratic accountability, and bureaucracy quality.

7 The country risk index reflects the uncertainty associated with investing in a particular country. It comprises 22 variables, representing three major components of country risk, namely economic, financial and political.

8 Identifying a jump is simply a way to construct one of our dependent variables. The nonparametric jump technique dates back to 2002 and four approaches are popular in the existing literature. We choose the Barndorff‐Nielsen and Shephard ( 2004 , 2006 ) approach as it is one of the earliest approaches and has been successfully adopted by various authors from 2002 until recently in 2021 (see Andersen et al ., 2003 ; Tanthanongsakkun et al ., 2018 ; Ho et al ., 2021 ; Phiromswad et al ., 2021 ).

9 We run separate regressions for the daily growth rate in confirmed cases and the daily growth rate in deaths in all analyses. The results remain consistent. To save space, these results are not reported and are available upon request.

10 When we examine the COVID‐19 confirmed cases only, the interaction terms in the RV and jump models are also negative and statistically significant. To save space, the results are not reported here, but are available upon request.

11 For realised volatility, the interaction terms between the COVID‐19 confirmed cases, death, and the composite risk in the separate models are also negative and significant. The results are not reported here and are available upon request.

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The us stock market and the global economic crisis.

Published online by Cambridge University Press:  26 March 2020

The question whether the US equity market is overvalued is important from a policy perspective because a significant derating could interact adversely with the realisation of risks of recession. A simple dividend based model suggests that the market is two or three times overvalued. Allowing for stock buybacks, takeovers for cash and temporary unsustainable earnings growth leave the market overvalued by 20–30 per cent. The ‘New Economy’ view that recessions are things of the past and that technical change justifies permanently higher earnings growth is implausible. An influential argument that the traditional premium earned by equities over bonds is too high is itself theoretically special. Similarly the recent relationship between US inflation and the risk premium has not held at other times and places, while the fact that most wealth is held by middle-aged people with limited time horizons supports a larger premium. Our best guess is that the current premium is 1.7 per cent p.a. which is near the lower end of the historical range although equity investors do not appear to be prepared for lower returns in the face of the possibility of global recession in the next 12–18 months. The risk that a US market adjustment might aggravate such a recession in the US itself is a basis for reconsidering central banks' disregard of asset prices in setting monetary policy.

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The views in this article are entirely personal, and in no way reflect the opinions or positions of the Tudor Group. This article could not have been written without the help received from Brian Bell. I am also appreciative of the comments received from members of the Clare Group, Olivier Blanchard, Richard Brealey, Mark Heffernan, John Macfarlane, Mahmood Pradhan, Andrew Smithers, Paul Tudor Jones and John Vickers. Of course, the usual caveat applies. The article assumes that the S&P500 = 1150.

The Review is pleased to give hospitality to CLARE Group articles, but is not necessarily in agreement with the views expressed; responsibility for these rests with the authors. Members of the CLARE Group are M.J. Artis, T. Besley, A.J.C. Britton, W.A. Brown, W.J. Carlin, J.S. Flemming, C.A.E. Goodhart, J.A. Kay, R.C.O. Matthews, D.K. Miles, M.H. Miller, P.M. Oppenheimer, M.V. Posner, W.B. Reddaway, J.R. Sargent, M.Fg. Scott, P. Seabright, Z.A. Silberston, S. Wadhwani and M. Weale.

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• Sushil B. Wadhwani (a1)
• DOI: https://doi.org/10.1177/002795019916700110

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A Century of Global Stock Markets

The expected return on equity capital is possibly the most important driving factor in asset allocation decisions. Yet, the long-term estimates we typically use are derived from U.S. data only. There are reasons to suspect, however, that these estimates of return on capital are subject to survivorship, as the United States is arguably the most successful capitalist system in the world; most other countries have been plagued by political upheaval, war, and financial crises. The purpose of this paper is to provide estimates of return on capital from long-term histories for world equity markets. By putting together a variety of sources, we collected a database of capital appreciation indexes for 39 markets with histories going as far back as the 1920s. Our results are striking. We find that the United States has by far the highest uninterrupted real rate of appreciation of all countries, at about 5 percent annually. For other countries, the median real appreciation rate is about 1.5 percent. The high return premium obtained for U.S. equities therefore appears to be the exception rather than the rule. Our global database also allows us to reconstruct monthly real and dollar-valued capital appreciation indices for global markets, providing further evidence of the benefits of international diversification.

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• A Century of Global Stock Markets Author(s): William N. Goetzmann Philippe Jorion Investing in global stock markets has become the focus of a baby boom generation obsessed with saving for retirement. Behind the flood of...

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Published as "Global Stock Markets in the Twentieth Century", JF, Vol. 54,no. 3 (June 1999): 953-980.

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Global financial market integration: a literature survey.

1. Introduction

2. historical context, 2.1. market segmentation, 2.2. portfolio diversification, 2.3. market integration evidence from developed and emerging economies, 3. theoretical background, 3.1. cointegration, 3.1.1. spillovers and linkages, 3.1.2. economic market integration, 3.1.3. empirical modelling for cointegration, 3.2. time varying correlations, empirical modelling for time varying correlations, 4. empirical work, 4.1. empirical evidence: cointegration, 4.2. empirical evidence: time varying correlation, financial market integration and volatility, 5. discussion and avenues for future research, acknowledgments, conflicts of interest.

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Share and Cite

Haddad, S. Global Financial Market Integration: A Literature Survey. J. Risk Financial Manag. 2023 , 16 , 495. https://doi.org/10.3390/jrfm16120495

Haddad S. Global Financial Market Integration: A Literature Survey. Journal of Risk and Financial Management . 2023; 16(12):495. https://doi.org/10.3390/jrfm16120495

Haddad, Sama. 2023. "Global Financial Market Integration: A Literature Survey" Journal of Risk and Financial Management 16, no. 12: 495. https://doi.org/10.3390/jrfm16120495

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A Century of Global Stock Markets

NBER Working Paper No. w5901

32 Pages Posted: 15 May 2000 Last revised: 18 Aug 2022

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Date Written: January 1997

The expected return on equity capital is possibly the most important driving factor in asset allocation decisions. Yet, the long-term estimates we typically use are derived from U.S. data only. There are reasons to suspect, however, that these estimates of return on capital are subject to survivorship, as the United States is arguably the most successful capitalist system in the world; most other countries have been plagued by political upheaval, war, and financial crises. The purpose of this paper is to provide estimates of return on capital from long-term histories for world equity markets. By putting together a variety of sources, we collected a database of capital appreciation indexes for 39 markets with histories going as far back as the 1920s. Our results are striking. We find that the United States has by far the highest uninterrupted real rate of appreciation of all countries, at about 5 percent annually. For other countries, the median real appreciation rate is about 1.5 percent. The high return premium obtained for U.S. equities therefore appears to be the exception rather than the rule. Our global database also allows us to reconstruct monthly real and dollar-valued capital appreciation indices for global markets, providing further evidence of the benefits of international diversification.

Suggested Citation: Suggested Citation

Philippe Jorion (Contact Author)

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Trading on the Stock Markets Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

Trading on the stock market

Works cited.

A stock market can be defined as a “public entity for trading of company stock and derivatives at an agreed price; these are securities listed on stock exchange as well as those traded privately” (Anonymous: “Capital and derivatives Market” Para 2). At the beginning of the month of October, the year 2008, the global stock market size was determined to be approximately 37 trillion US dollars.

More so, estimation that has been carried out of the “total world derivatives market” has shown that the value of the derivatives market is about 790 trillion US dollars; a value which is more than ten times the whole global economy size. On the stock market, there is listing of the stocks and trading them. Both the buyers and sellers are brought together on this market (Anonymous: “Capital and derivatives Market” Para 3).

In the United States, the biggest stock market, basing on the market capitalization, is the NYSE – “New York Stock Exchange”. In addition to this, in the United States, we also have other stock exchange markets such as the Dow Jones Stock Market and NASDAQ. In Britain, we have the “London Stock Exchange’.

In Japan, there is the Tokyo Stock Exchange (TSE). TSE is number three in size by “aggregate market capitalization of its listed companies…it had 2,414 listed companies with a combined market capitalization of $3.1 trillion as of May 2010” (“China becomes the world’s third largest stock market” Para 7). In the United Kingdom, we have the London Stock exchange market.

It is located in the city of London, According to “Market Highlights for the first half –year 2010” (Para 3), by the month of August last year (2010), “the exchange had a market capitalization of US$ 2.63 trillion, making it to be the forth largest stock exchange in the world by this measurement and it is the largest in Europe” (“Market Highlights for the first half –year 2010” 1).

In Saudi Arabia, we have the Saudi Stock Exchange, also referred to as “Tadawul”. It is under the control of the “Saudi Arabian Monetary agency””. This is the largest stock exchange market in the region.

As it is pointed out by the “Saudi Stock Exchange”, it has “a market capitalization amounting to much more than US55 billion” (Para 1). This market has been increasing over the years beginning from the time it was set up in the year 1954. This stock exchange, being the only major stock exchange in the country, used to operate informally up to the middle of the 1980s.

Those traders who take part in the stock exchange market may be either just small individuals who wish to invest in stocks or they can be very big “hedge fund traders”. Among the exchanges that are carried out, there are those in which transactions are entered in to on a “trading floor” (physically).

This is done by a method referred to as “open outcry”. Such form of sale is employed in both “stock exchanges” as well as “commodity exchanges” in which those engaging in trade make bids and offers by word of mouth.

However, with advancing technology, there has emerged another form exchange in which trading is carried out in a virtual manner. In this, there is use of computers and transactions are carried out electronically without necessarily having the traders interacting physically.

Basically, the trades carried out are on the basis of an “auction market model”. Under this, the buyer engages in bidding for a definite price he is ready to pay and then the prospective seller asks for his or her desirable price from the buyer.

This may go on for sometime until the buyer and the seller meet at a common price that is deemed to be desirable for both parties; the buyer and the seller. At this point, a sale occurs. In a situation where we have two or more bidders (buyers) or askers (seller), one who comes first is the one who is sold to.

A stock exchange is meant to make it possible for the buyers and sellers to interact in order to exchange securities and by doing this, a marketplace is provided. Considering the New York Stock Exchange, this market is a “physical exchange” where the traders interact with one another physically, face to face and it is also a “listed exchange”. Unlike the NYSE, NASDAQ is a “virtual listed exchange” (Anonymous: “NASDAQ” Para 2).

In this particular market, all the trading activities are carried out electronically, over a “computer network. The trading process is the same as that followed by the New York Stock exchange market. The only difference between the two is that, in this market, the buyers and sellers interact electronically rather than physically.

Time and again, there has been deviation of active trading from “active exchange” (Ortega and Yalman Para 1). Ortega and Yalman point out that, “Securities firms, led by UBS AG, Goldman Sachs Group Inc. and Credit Suisse Group, already steer 12 percent of U.S security trades away from the exchanges to their internal systems” (Para 2).

They further projected that, there was even a probability of the level of that share going up (to eighteen percent) by the year 2010 “as more investment banks bypass the NYSE and NASDAQ and pair buyers and sellers of securities themselves, according to the data compiled by Boston-based Aite Group LLC, a brokerage consultant” (Ortega and Yalman Para 3).

Other than NASDAQ and the NYSE, in the United States’ stock market, there is the Dow Jones stock market. This was set up in the year 1896 and its founder was Charles Dow. This exchange is “an icon in the trading industry” (“Dow Jones Stock Market” Para 1). It is further pointed out that, basically “the Dow commercial average is a market index that provides a fast method to get to an understanding of how the exchange is fairing on any given day” (“Dow Jones Stock Market” Para 2).

This stock market does not provide “specifics” but instead allows the public to have the knowledge about the overall trends that are being followed by it. Several criticisms have been directed towards the “Dow Jones Stock Market” and these criticisms have been coming form the researchers.

They have criticized this stock market’s move not to include a large number of firms to carry out the representation of the general “market performance”. More criticisms have also arisen in which there has been disagreeing that “trading on all thirty stocks included in the Dow Jones stock market doesn’t always open at the same time each morning, thus skewing the day’s average” ((“Dow Jones Stock Market” Para 2).

However, despite these criticisms, the “Dow Jones Stock market Business average”, in the course of time, has determinedly performed similarly to the broader United States market and this is the reason why this stock market remains to be preferred by many people to the present day.

Considering the case in Saudi Arabia, in March 2010, it was reported in the “All Headline News” that the stock exchange of this country “had opened its doors to foreign investors as a leading investment firm announced that foreign investment in the country was expected to grow by 20 percent in the coming year” (“Saudi Stock Market” Para 1).

This move was taken to enable the foreigners to “invest in ‘Exchange Traded Funds’, an index fund traded on an exchange like a stock so as to offer foreign investors the opportunity to obtain broad-based exposure to the Saudi equity market” (” (“Saudi Stock Market” Para 2).

In the year 2008, FDI to Saudi Arabia was twenty four million US dollars. This country has also realized “stable improvement in its ranking in the World Bank’s Doing Business index” (“Saudi Stock Market” Para 11).

It moved to position 13 in the year 2010 from position 15 in the previous year and this makes this country to be “the highest ranked country in the Middle East ….the index measures ten different variables ranging from the ease of sharing a business and enforcing contracts to paying taxes and cross border trading”(“Saudi Stock Market” Para 11).

There are some occasions on which trading of particular shares is stopped; sometimes for a few hours or days or even longer. On an individual level, stopping to trade on a stock can take place during a drop.

This step assists in enabling people trading in stock to avoid losing their money. The simplest way to do this is to set “a stop-loss order on one’s brokerage on each of one’s holding to protect oneself against massive drops in the value of holdings” (Hewitt Para).

However, on other occasions, the capital market authority can stop trading a particular stock. It does this for several reasons and among these reasons is that, it may intent to punish inside trading and to regulate the market.

This is clearly evident on the Saudi stock exchange market where it is reported that the stock market has “cleaned up” following the actions taken by the Capital market Authority (“Saudi Stock Market” Para 5).

Lacoma (Para) points out that the most well-known stock market is the NYSE. However, all the stock markets work in the same way, the NYSE works. In these markets, the Capital Market Authorities can stop trading of a particular stock but this occurs in just some specific cases for certain organizations.

This can be carried out in the form of a suspension of a stock market. This implies that those who want to invest shall not have any influence in line with the “suspended stock”. Those people who are owners of this security have no power to sell it and those ready to buy it can not be able to do so.

In addition, the company is prevented from carrying out any adjustments on this stock. Suspensions take place at once and may remain effective, going on for a number of days but not beyond ten days in total (Lacoma Para 2). It is also important to note that suspension is applicable to a single company’s securities and stock and not on the securities and stock of the whole stock market.

Closing down the whole stock market can not be easy. The suspension is not aimed at paralyzing the economy in its entirety in whatever way. Those who wish to invest can go on trading on the stock market; buying and selling stocks from other companies on the market.

Suspensions are meant to make the companies to engage in reviewing their financial records. This in most cases follows suspicion of existence of fraud in a company or in the cases where big flaws have been committed in regard to making records. In some cases, suspension may occur following the need to make clarification of certain legislation. The suspension of stock is carried out in order to safeguard the investors against any uncertainties while all-inclusive investigation on the company’s activities is carried out.

A suspension may have a negative effect on the company’s stock on the stock market. After being suspended, in most cases the stock starts trading at a greatly decreased price. This comes about as a result of the investors being filled with uneasiness in regard to the suspension and look at the company in a suspicious manner even if findings after the suspension were not negative.

It is important to draw a distinction between a suspension and “halts and delays”. A halt takes place when the suspension of the stock is carried out by the company itself and it does this with an intention of sharing some important information with investors. This is always brief and may not go on for even more than an hour. A delay is just like a halt.

However, the difference is that it occurs at beginning of the trading day. In whichever the case; whether it is a suspension, a halt or a delay, all of them involve stopping of trading on the stock market.

Most of the people who invest have come to learn that the stock market is a quite volatile market for one to put his or her money in it. However, it is this market characteristic (volatility) that brings in returns which the investors obtain. Wagner defines volatility as “a measure of dispersion around the mean or average return of a security…….and Standard deviation can be used to measure volatility” (Para 2). This method of measuring volatility gives out information on “how tightly the price of a stock is grouped around the mean or moving average” (Wagner Para 2).

Wagner further points out that, in considering securities, “the higher the standard deviation, the greater the dispersion of returns and the higher the risk associated with the investment” (Para 3). Apart from this using this method in measuring volatility, it can also be measured by taking the mean range to every period, “from the low price value to the high price value” Wagner Para 3).

Basing on this, there is expressing of “the value obtained as a percentage of the starting point of the period….larger movements in the price creating a higher price range result in higher volatility and the lower price ranges result in lower volatility’ (Wagner Para 5).

It is important to note that, there exists a very powerful correlation between “volatility and market performance”. There is a tendency for the level of volatility to come down while there is an increase in the stock market and the level of volatility goes up while the stock market declines. The risk level moves up with the level of volatility and at the same time the level of returns goes down.

To illustrate this clearly, Wagner cites a research that was conducted in 2007 by “Crestmont Research” which was aimed at evaluating the past records of the relationship that exists between the “stock market performance” and the “market volatility”. This research utilized the “average range for each day to measure the volatility of the Standard & Poor’s 500 Index” (Wagner Para 6).

The results that were presented from the research report gave out an indication that higher volatility matches up with higher likelihood of a decreasing market and lower volatility matches up with a higher likelihood of an increasing market (Wagner Para 6).

Considering, the volatility ratio, according to “Investopedia”, volatility ratio is defined as “a technical indicator used to identify price ranges and breakouts” (Para). It utilizes a “true price range” to carry out the determination of a “true trading range” of a stock and is capable of identifying “situations where price has moved out of this true range” (Investopedia Para 1).

By being familiar with stock volatility as well as the volatility ratio, the investors are in a better position to trade wisely on any stock exchange market.

The stock exchange market brings together buyers and sellers in order for them to engage in stock trading. The traders on this market may be small individual investors or large business corporations. Most of these traders who have been in this business long enough, have come to learn that the stock market is a quite volatile market for one to put money in.

However, in whichever the stock exchange market, it is this market characteristic (volatility) that brings in returns which the investors obtain.

Among the major stock exchange markets in the world that have been looked at include; the New York Stock Exchange, NASDAQ, Dow Jones Stock exchange (all the three found in the U.S), the Tokyo Stock Exchange, The London Stock Exchange and the Saudi Stock Exchange.

There comes a time when the capital market authority may stop trading a particular stock. This may lead to the suspension of the stock. This occurs for several reasons and among these reasons is that, the company involved may not be having right records or there is likelihood of having fraud in the company.

More so, there might be some legal obligations that are supposed to be met by the company involved. However, not all the trading is stopped on the market but it is only one company’s stock and trading will always go on as usual with stocks of other companies that are not affected with the suspension.

Anonymous. “Capital and derivatives Market ”. 2010. Web.

“ China becomes the world’s third largest stock market ”. Economic Times. 2010. Web.

“Dow Jones Stock market”. Cheap Stock Trading. 2009. Web.

Investopedia, “ Volatility Ratio ”. 2011. Web.

Lacoma, Tyler. “When does the stock market suspend trading? ” 2010. Web.

“Market Highlights for the first half –year 2010”. World Federation of Exchanges. 2010. Web.

“ NASDAQ – What is NASDAQ? All about NASDAQ stock market ”. Hubpages Incl. 2011. Web.

Ortega, Edgar, and Yalman Onaran. “UBS, Goldman threaten NYSE, Nasdaq with rival stock markets”. Bloomberg, 2006. Web.

“Saudi Stock Exchange”. Economy Watch. Web.

“Saudi Stock Market Opens to foreigners”. All headline News. Web.

Wagner, Hans. “ Volatility’s impact on market returns ”. 2010. Web.

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• Chicago (A-D)
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IvyPanda. (2018, May 22). Trading on the Stock Markets. https://ivypanda.com/essays/stock-markets/

"Trading on the Stock Markets." IvyPanda , 22 May 2018, ivypanda.com/essays/stock-markets/.

IvyPanda . (2018) 'Trading on the Stock Markets'. 22 May.

IvyPanda . 2018. "Trading on the Stock Markets." May 22, 2018. https://ivypanda.com/essays/stock-markets/.

1. IvyPanda . "Trading on the Stock Markets." May 22, 2018. https://ivypanda.com/essays/stock-markets/.

Bibliography

IvyPanda . "Trading on the Stock Markets." May 22, 2018. https://ivypanda.com/essays/stock-markets/.

2020 Theses Doctoral

Essays on Financial Market and Trade Globalization

Wang, Yahui

This dissertation presents three essays in financial economics. The essays study the impact of trade globalization through the lens of the financial market. The first chapter investigates the effect of trade liberalization policy on firm value. I identify this effect by exploiting cross-sectional differences in firms' exposure to potential tariff hikes imposed on U.S. imports from China. I find that the Chinese equity market responded negatively to a major U.S.-China trade liberalization event in 2000, and the responses were driven by inefficient state-owned institutions. The analysis also implies that policy uncertainty elimination may generate distributional gains from market share reallocation. The second chapter focuses on the role of implicit protection from trade globalization and its impact on the U.S. equity market. The third chapter explores the consequences of the U.S.-China trade war.

Geographic Areas

• United States
• International trade
• Economic policy
• International economic relations

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The SIFMA Foundation is dedicated to fostering knowledge and understanding of the financial markets for individuals of all backgrounds. Drawing on the support and expertise of the financial industry, the SIFMA Foundation provides financial education programs and tools that strengthen economic opportunity across communities and increase individuals’ awareness of and access to the benefits of the global marketplace.

Among its leading efforts, the SIFMA Foundation:

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The SIFMA Foundation's acclaimed The Stock Market Game™ program is an online simulation of the global capital markets that engages students grades 4-12 in the world of economics, investing and personal finance, and prepares them for financially independent futures. More than 600,000 students take part every school year across all 50 states. The Stock Market Game has reached 22 million students since its inception in 1977.

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The SIFMA Foundation's InvestWrite™ national essay competition is a culminating activity for The Stock Market Game students, extending what they have learned in SMG by challenging them to analyze, think critically and problem solve. Students address real world financial issues and situations by answering a question about long-term saving and investing. A new theme and question are posed each year. Since the program began in 2004 over 260,000 essays have been written in classrooms across the country and more than 50,000 volunteers have served as judges in the writing competition.

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The SIFMA Foundation's annual Capitol Hill Challenge™ (CHC), presented by the Charles Schwab Foundation, is an exciting national financial education competition for junior high and high schools that reaches all 50 U.S. states and their members of Congress. CHC matches Members of Congress with students, teachers, and schools competing in The Stock Market Game™ in their respective district or state. Student teams manage a hypothetical $100,000 online portfolio and invest in real stocks, bonds, and mutual funds. Since its inception in 2004, CHC has made 7,500 matches of U.S. Representatives and Senators with schools, encompassing more than 170,000 students across the country.

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Invest It Forward™ is an award-winning industry-wide financial education and capital markets literacy campaign convening hundreds of financial firms that are committed to giving young Americans a solid understanding of the capital markets system and the invaluable tools to achieve their dreams. Invest It Forward is designed to help young people understand how to harness the capital markets for their own benefit and realize their dreams.

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An independent study by Learning Point Associates found students who participated in the SIFMA Foundation's The Stock Market Game™ program scored significantly higher on mathematics and financial literacy tests than their peers who did not. They also found that teachers who taught SMG reported the program motivated them to better plan for their future and to engage in financial planning, research, and use of investment products and services.

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16 Global Stock Markets in the 20th Century

• Published: November 2006
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The contribution of this article is to present a wide cross section of historical stock market performance over roughly 80 years of world history. Until recently, studies of the long-term rate of return to the stock market have been confined only to the U.S. or U.K. markets because of data availability. The central question to us is whether the U.S. experience is representative of equity investing around the world through the 20th century. Over the period we examine, the United States had the highest rate of real appreciation in stock prices in a sample of 39 countries—significantly higher than the median market and slightly higher than a GDP-weighted index of non- U.S. markets. Some of the most difficult challenges in this article were trying to understand what happened to investment markets during crisis periods, particularly the Second World War, when many markets ceased to function normally, and legal ownership claims—at least for parts of the population— ceased to exist. As econometricians, we like to imagine that the economic environment is roughly stationary—that a stock is a stock whether it trades in 1941 in Berlin or 2005 in the United States. The experience of the 20th century cautions us that this is not necessarily true. Major world events, for which standard econometric models cannot account, are apt to redefine and realign markets

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Stock market today: Asian stocks rise after Wall Street barrels to records

The New York Stock Exchange, right, is shown in this view looking east on Wall St. on Wednesday, June 5, 2024. Global shares are mixed as investors weigh data highlighting a slowing U.S. economy that offers both upsides and downsides for Wall Street. (AP Photo/Peter Morgan, File)

People pass by an electronic stock board showing Japan’s Nikkei 225 index at a securities firm Thursday, June 6, 2024, in Tokyo. (AP Photo/Eugene Hoshiko)

A person walks in front of an electronic stock board showing Japan’s Nikkei 225 index at a securities firm Thursday, June 6, 2024, in Tokyo. (AP Photo/Eugene Hoshiko)

People stand in front of an electronic stock board showing Japan’s Nikkei 225 index at a securities firm Thursday, June 6, 2024, in Tokyo. (AP Photo/Eugene Hoshiko)

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HONG KONG (AP) — Asian markets rose Thursday after Wall Street barreled to records Wednesday as the frenzy around artificial-intelligence technology kept sending stocks higher.

U.S. futures and oil prices gained.

In Tokyo, the Nikkei 225 index climbed 0.9% to 38,841.75. The Hang Seng in Hong Kong added 0.8% to 18,569.48 and the Shanghai Composite index was up 0.1% at 3,068.31.

Australia’s S&P/ASX 200 gained 0.7% to 7,824.40 after data from the Australian Bureau of Statistics showed the country’s trading surplus rebounded in April, with exports falling 2.5% and imports dropping 7.2%.

Taiwan’s Taiex surged 2% after contract electronics maker Foxconn’s shares jumped 0.6% after the company reported its revenue rose 22.1% year-on-year in May, a record high for the month. In Bangkok, the SET was up 0.4%.

South Korea’s markets were closed for a holiday.

On Wednesday, the S&P 500 climbed 1.2% to 5,354.03, hitting the top of its all-time high set two weeks ago. The Nasdaq composite jumped 2% to 17,187.90 and likewise set a record. The Dow Jones Industrial Average, which has less of an emphasis on tech, lagged the market with a gain of 0.2% to 38,807.33.

The rally sent the total market value of Nvidia , which has become the poster child of the AI boom, above $3 trillion for the first time.

Nvidia is leading the way because its chips are powering much of the rush into AI, and it rose another 5.2% to bring its gain for the year to more than 147%.

The chip company also joined Microsoft and Apple as the only U.S. stocks to ever top $3 trillion in total value. Apple regained that milestone valuation after rising 0.8% Wednesday.

The gains for tech stocks helped offset a 4.9% drop for Dollar Tree , which matched analysts’ expectations for profit but fell just shy for revenue. The retailer also said it’s considering selling or spinning off its Family Dollar business.

The broad retail industry has been highlighting challenges for lower-income U.S. households, which are trying to keep up with still-high inflation.

Treasury yields fell in the bond market following some mixed data on the economy. One report said real estate, health care and other businesses in the U.S. services sector returned to growth last month and beat economists’ forecasts. Perhaps more importantly for Wall Street, the report from the Institute for Supply Management also said prices rose at a slower pace in May than a month before.

Another report suggested hiring slowed last month by more than expected at U.S. employers outside the government.

Stocks had been shaky recently after reports suggested the U.S. economy’s growth is fading under the weight of high interest rates. Wall Street has actually been hoping for such a slowdown because it can drive down inflation and convince the Federal Reserve to deliver much-desired cuts to interest rates.

But it also raises the possibility of overshooting and sending the economy into a recession, which would ultimately hurt stock prices.

Treasury yields sank after the weaker-than-expected economic reports raised expectations for coming cuts to rates by the Federal Reserve. The yield on the 10-year Treasury fell to 4.29% from 4.33% late Tuesday and from 4.60% a week ago.

The next big move for Treasury yields and Wall Street overall could come Friday, when the U.S. government releases its monthly jobs report. That report is much more comprehensive than Wednesday’s from ADP, and economists expect Friday’s data to show a slight pickup in overall hiring. The hope continues to be that the job market slows its growth but not by so much that it devolves into widespread layoffs.

In other dealings, U.S. benchmark crude oil gained 40 cents to $74.47 per barrel in electronic trading on the New York Mercantile Exchange.

Brent crude, the international standard, was up 30 cents to $78.71 per barrel.

The U.S. dollar fell to 155.59 Japanese yen from 156.10 yen. The euro climbed to $1.0892 from $1.0868.

AP Business Writer Stan Choe contributed.

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Global equity index dips, yields rise with inflation data in focus

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Reporting by Sinéad Carew, Gertrude Chavez-Dreyfuss, Karen Brettell, Johann M Cherian, Lisa Pauline Mattackal, Alun John, Stella Qiu; Editing by Jacqueline Wong, Edwina Gibbs, Ana Nicolaci da Costa, Will Dunham, Alison Williams and Deepa Babington

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Markets Chevron

Stocks retreat, Treasuries flail as US rate cut hopes wither

Global stocks pulled back from an all-time high on Friday after surprisingly strong U.S. monthly jobs data dimmed hopes that the Federal Reserve would soon follow euro zone and Canadian interest rate cuts, causing Treasury yields to shoot higher.

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india’s economic promise

Wall Street Lands on India, Looking for Profits It Can’t Find in China

Stock markets in Mumbai have surged as big global investors hope India can become a source of growth. It won’t be so easy.

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By Alex Travelli

Reporting from Mumbai and New Delhi

Mumbai, India’s financial capital, has seen a lot of new faces over the past year. The heads of global banks have been trooping through, visiting its stock exchanges, buying property and hiring new staff.

A postpandemic boom has pushed the value of India’s stock market to about $5 trillion, putting it neck and neck with Hong Kong’s. India’s economy is among the fastest growing in the world. Wall Street can’t ignore India anymore.

The point of entry is Mumbai, a port city of 26 million people, counting its suburbs. Mumbai has been given a makeover: Suspension bridges span its seaways, as well as its infamous slums, and new metro lines have been carved beneath its Art Deco and Indo-Saracenic facades and rumbling commuter railways.

Mumbai has been India’s commercial hub for eight decades, but it was relatively unfamiliar to global finance until the past two years.

Now North American pension managers, sovereign wealth funds from the Persian Gulf and Singapore, Japanese banks and private equity firms are clamoring for a piece of India’s growth. Old hands and novices alike can rattle off reasons India’s rise is inevitable.

Making money will be easier said than done, not least because Indian investors got here first. Compared with Indian companies’ current profits, their stock prices are high.

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Tech Rout Hits Stocks as Treasuries Gain After GDP: Markets Wrap

• Economy grew at softer pace as spending, inflation marked down
• S&P 500, Dow Industrials did not print for more than an hour

Wall Street traders sent stocks down and bonds up after the latest round of economic data signaled momentum is slowing.

Just 24 hours before the release of the Federal Reserve ’s favorite price gauge, a report showed the US grew at softer pace — as both spending and inflation were marked down. Economic cooling could bolster the case for the Fed to start cutting interest rates this year. But that might also imply weaker consumption, and ultimately become a concern for Corporate America .

3 catalysts could spark a 10% sell-off in the stock market this summer, according to JPMorgan

• The S&P 500 could drop 10% over the summer months to 4,800, according to JPMorgan.
• The bank highlighted three catalysts that could drive a decline.
• The May jobs report could spark a bearish narrative change in the stock market.

A 10% sell-off in the stock market is possible this summer after a massive year-to-date rally, according to JPMorgan .

The bank's trading desk said in a recent note that the S&P 500 could test the 5,000 level as support and potentially fall below with a decline of as much as 10%. That would put the index at about 4,800.

According to the trading desk, there are three big catalysts that could drive such a sell-off.

"Buyer's exhaustion"

The recent performance of stocks during earnings season suggests potential equity buyers are getting exhausted.

The bank highlighted that companies that beat first quarter earnings expectations underperformed the S&P 500 while companies that missed expectations were punished.

"The combination of earnings season stock performance and narrowing market breadth points to a market that needs a new set of catalysts and/or reassurance about the prevailing market narrative," JPMorgan said.

That means merely in-line macro data and a cautious Fed could drive investors to the sidelines during second-quarter earnings, which begin in mid-July.

"Momentum unwind"

The bulk of the stock market's recent gains have been driven by momentum, with tech stocks leading the advance.

However, if momentum falters, there could be a larger unwind that drives stock prices lower.

"The key to watch is the short leg of momentum. If that falters, it would trigger a larger degrossing as part of that momentum unwind. That chain reaction is what could lead to a 5% - 10% pullback," JPMorgan said.

"Macro data disappointment"

The re-emergence of a stagflation or recessionary narrative would kill hopes of a soft landing in the economy and likely drive stock prices lower.

That narrative change could happen on Friday with the May jobs report.

JPMorgan said a jobs report below 50,000 to 75,000 range or above the 250,000 to 300,000 range could spark a narrative change and hurt stock prices.

Current economist estimates suggest about 190,000 jobs were added to the economy in May.

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