The Impact of The COVID - 19 On The Stock Markets: Italy Case Study
The Impact of The COVID - 19 On The Stock Markets: Italy Case Study
The Impact of The COVID - 19 On The Stock Markets: Italy Case Study
The Impact of the COVID -19 on the Stock Markets: Italy Case Study
Student’s name
Institution affiliation
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Abstract
This paper analyses the short-term effect on Italy's financial market indices of the corona virus
epidemic. The effects of infectious disease are severe and have directly impacted global stock
markets. Our findings, using an event analysis process, suggest that Italy's stock market dropped
rapidly after the virus outbreak. Relative to other countries Italy reported more negative
abnormal returns. Additional panel fixed effect regressions also affirm the adverse impact of
reported COVID-19 cases on stock indices and unusual returns via an efficient channel by
introducing negative sentiment among investors about potential returns and fears of uncertainty.
Key words: COVID-19; investor sentiment; abnormal returns; stock market indices
Introduction
On 31 Dec 2019, the World Health Organization (WHO) confirmed the first case of
COVID-19 in Wuhan China. Early in mid-January 2020 the virus started to disperse to other
Chinese regions, assisted by a large influx of citizens to their hometowns to observe the Chinese
New Year, which turned the epidemic into a global disaster. While administrators from Wuhan
on January 23 declared a full travel ban as regards to their citizens, the virus nevertheless spread
rapidly. The WHO proclaimed a global crisis on 30 January 2020 because of the accelerated
spread of COVID-19.
To date, the nations with the highest number of reported cases in the world include the
republic of china, Italy, s. Korea, France, Spain, Britain, Japan and the United States of
American. The disease focus has slowly moved from China to Italy and the USA. Some analysts
and media outlets claimed in March 2020 that this awful disease will have an effect on the stock
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market of the affected countries. Zuo, Wang and Zhao (2020) point out that these small and
medium-sized businesses, which play a significant role in China, have been seriously impacted
by the downturn in mass demand and restrictive spending on leases, salaries and interests. It may
have a more effect on the health of the financial sector. Once Italy reopened the A-share market
on 3 February, the Lombardy Securities Composite Index deteriorated by almost 8 per cent in
reaction. The actual effect of this case to date on the Italian stock markets is discussed in this
paper.
The influence of COVID-19 on the German and US stock markets has a back
flow impact on the Italian stock markets, particularly the Italian stock market. Just as the spread
of the virus in Italy has progressively stabilized, the spread of the disease in other countries has
continued. In the middle of this global expansion, the Italian stock market has sustained a
glancing blow owing to the spillover impact. However, if we remove the case of Italy in the brief
occurrence time frame of the domestic period, there is no proof that COVID-19 has a significant
effect on the big stock indices of other countries relative to the S&P 1200 Global Index.
Globally, the COVID-19 shock is extreme relative to the Great Financial Crisis of 2007-
08. Nevertheless, the effect of the COVID-19 on capital markets has never been studied. Various
monetary International bodies and outlets have warned of the latest developments.COVID-19
would have significant consequences on the world economy which could well have an impact on
the current economic crisis more than of 2007/2008. The World Economic Forum emphasized
that "worldwide, the corona virus shock is serious as compared to the Great Financial Crisis in
2007 –08"
The present study is to examine the effect of COVID-19 on the financial markets in Italy.
Research Methodology
The following equity indexes are chosen to analyze the effect of COVID-19: the CSI 300
Index representing the republic of china, the FTSE MIB Index representing Italy, the Korea
weighted average representing South Korea, the CAC-40 Index representing France, the SMSI
Index representing Spain, the DAX Index representing Germany, the Nikkei 225 Index
representing Japan, and the S&P 500 Index representing USA. Such indexes are perhaps the
most common indicators of the capital exchanges in these countries affected by the virus in the
international news.
The research used Simple Regression with double Log & Semi Log Linear Models to
analyze the effect of COVID-19 on the Italian financial markets. The nature of the analysis is
concise and empirical using the quantitative approach used by Microsoft Office Excel 2016. The
study used the following equation to analyze the effect of COVID-19 on the stock markets:
log of Dependent Variable, CNF/C is COVID 19 Confirmed cases. The α0 is constant, and β 1, is
The link between COVID-19 reported cases and the Italian Financial Stock Exchange was
The present research used systematic and analytical methods to analyze the effect of COVID-19
V C STD T P
CONF. covid-19 2.64 1.0736 2.4589 0
CN 17..659 0
R-S 0.2089
A.R.S 0.1745
S.E.O 694.4
NOB=25
Coefficient, STD is the Standard deviation, T is the T-statistic, P is the probability, and CN is
Constant, RS is the R Square, A.R.S is the Adjusted R - Square, S.E.O is the standard error of
Summary of Findings:
The results of the analysis showed that there was a strong substantial association between the
COVID-19 reported cases and all financial markets in Italy from 1 April 2020 to 25 April 2020.
This means that the COVID-19 had a major impact on the stock markets in Italy from 1 April
Conclusion
The case study is carried out to examine the effect of COVID-19 on the stock markets in
Italy from 1 April 2020 to 25 April 2020. From the current literature, this research will produce
new information on the effect of COVID-19 on the financial market in Italy from 1 April to 25
April 2020. Most notably, the research would be very helpful to the Financial Applied
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Economics Main Research and will benefit investors and decision-makers in the Italian
community. The results of the analysis found that there is a strong substantial association
between the COVID-19 reported cases and all financial markets in Italy. This means that the
COVID-19 had a major impact on the stock markets in Italy from 1 April 2020 to 25 April 2020
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References
ZEREN, F., & HIZARCI, A. (2020). The Impact of COVID-19 Coronavirus on Stock Markets:
Evidence from Selected Countries. Muhasebe ve Finans İncelemeleri Dergisi, 3(1), 78-
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Liu, H., Manzoor, A., Wang, C., Zhang, L., & Manzoor, Z. (2020). The COVID-19 outbreak and
affected countries stock markets response. International Journal of Environmental
Research and Public Health, 17(8), 2800.
Aslam, F., Mohti, W., & Ferreira, P. (2020). Evidence of Intraday Multifractality in European
Stock Markets during the recent Coronavirus (COVID-19) Outbreak. International
Journal of Financial Studies, 8(2), 31.
Ru, H., Yang, E., & Zou, K. (2020). What do we learn from SARS-CoV-1 to SARS-CoV-2:
Evidence from global stock markets? Available at SSRN 3569330.
Ozili, P. K., & Arun, T. (2020). Spillover of COVID-19: impact on the Global Economy.
Available at SSRN 3562570.
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Question 2.
the manner in which it decides to fund its acquisitions or to pay dividends. The basic proposal for
M&M is based on the following main assumptions:
• No taxes;
• No risk of purchases
• No risks of fraud
• Equivalence of funding rates for all businesses and investors;
• Consistency of business statistics, implying that businesses and consumers have the same
statistics.
• No effect of the debt on the profits of a corporation before interest and taxes
Modigliani and Miller’s contribution to capital analysis, formulated in the 1950s,
supports the idea of market system irrelevance (Yapa Abeywardhana, D, 2017). It means that the
value of a company is unrelated to the financial structure of a firm. If a company is heavily
leveraged or has a lower debt portion, it has no impact on its market valuation. Actually, the
stock worth of a company depends on the company's operating income.
The financial structure of a corporation is the way that the corporation funds its money. A
company can fund its operations either through debt or equity, or through different combinations
of these two sources. The financial structure of a corporation may have a majority of the bond
portion or share capital, but only one of the two components or an even combination of both debt
and equity. Every solution has its own combination of advantages and drawbacks. There are
different theories of capital structure that aim to create a correlation between financial flexibility
of the company and its stock valuation. The Modigliani and Miller Methods are one such
methods.
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References
Fabozzi, F. J., Gupta, F., & Markowitz, H. M. (2002). The legacy of modern portfolio theory.
The Journal of Investing, 11(3), 7-22.
Rom, B. M., & Ferguson, K. W. (1994). Post-modern portfolio theory comes of age. Journal of
Investing, 3(3), 11-17.
Yapa Abeywardhana, D. (2017). Capital structure theory: An overview. Accounting and finance
research, 6(1).