Finance in the Time of Coronavirus during 100 Days of Isolation: The Case of the European Stock Markets

This paper attempts to investigate the effects of Coronavirus spread on the European stock markets. Coronavirus spread has been measured by cumulative cases, new cases, cumulative deaths and new deaths, while abnormal return of stock market is measured according to market model. This has been applied on stock markets of Belgium, France, Germany, Italy, Netherlands Spain and UK, on daily basis during the period from Febreuary15, 2020 till May 24, 2020.

Results have NOT supported these anticipated effects using panel analysis according to GMM technique, for the whole research period. After splitting the research period into 7 sub-periods (2-weeks each), results indicate that abnormal return of stock market seems to be sensitive to Coronavirus cases more than deaths, and to Coronavirus cumulative indicators more than new ones.

Results provide that stock markets have reacted negatively to Coronavirus spread, where all of the 4 indicators seem to affect abnormal return of stock markets during the first and second period. Results don’t support any negative effects during the third and fourth periods. Starting from the fifth period, stock markets seem to be influenced negatively by “Relative Cumulative Coronavirus Deaths” (RCCD). Besides, country effect has been investigated, where stock markets of Germany, Netherlands and UK have been affected by Coronavirus spread during the second period. For Belgium, France, Italy and Spain, these effects have been supported during the fourth period.

A robustness check has been conducted using the 4 indicators of Coronavirus spread for each of the 7 periods. This has been applied on the 273 stocks of the 7 countries during the research period (100 days) and supports the effect of Coronavirus spread on abnormal returns of stock markets during the first and second periods. It’s important to pinpoint that this effect has been supported only for “Relative Cumulative Coronavirus Cases” (RCCC). Another robustness check has been conducted using market return instead of abnormal return, and supported this effect.