Reaction of African stocks markets to disequilibrium episodes of the COVID-19 infection: Evidence from the top hit African countries

The continued COVID-19 pandemic has had a significant impact on the global economy, with countries battling to contain the infection’s spread as it continues to affect nearly every country in the globe. We test for possible explosive behavior (excessive disequilibrium) in COVID-19 infection in the top African impacted economies, given the sensitivity and fragility of stock markets to shocks. The study identifies two (2) separate explosive occurrences in Algeria and Egypt using the Generalized Sup Augmented DickeyFuller (GSADF) test. Furthermore, the study examines the influence of the COVID-19 infection’s explosive behavior on the stock markets of the countries, taking into consideration the disequilibrium occurrences. The COVID-19 infection’s explosive behavior had a negative but insignificant effect on stock returns, leading to an increase in riskiness. This outcome could be explained by the fact that the explosive incidents were transitory and could only have had a momentary impact on stock market returns absorbable overtime. More so, it suggests that investors may have adjusted to the shock of the COVID-19 infection prior to the two explosive occurrences, and that the development of the COVID-19 vaccine reassures for a near halt to the pandemic.