ECONOMIC AND POLITICAL STUDIES

2020, VOL. 8, NO. 3, 275–288

https://doi.org/10.1080/20954816.2020.1757570

RESEARCH ARTICLE

The impact of COVID-19 on stock markets

Qing Hea, Junyi Liub, Sizhu Wangc and Jishuang Yuc
a
China Financial Policy Research Centre and School of Finance, Renmin University of China, Beijing,
P.R. China; bDepartment of Economics, Soka University of America, Aliso Viejo, USA; cSchool of
Finance, Renmin University of China, Beijing, P.R. China

ABSTRACT ARTICLE HISTORY

This paper attempts to explore the direct effects and spill-overs of Received 1 April 2020
COVID-19 on stock markets. Using conventional t-tests and non- Accepted 6 April 2020
parametric Mann–Whitney tests, we empirically analyse daily
KEYWORDS
return data from stock markets in the People’s Republic of China,
COVID-19; coronavirus
Italy, South Korea, France, Spain, Germany, Japan and the United disease; stock markets; spill-
States of America. Our empirical results show that (i) COVID-19 over effects
has a negative but short-term impact on stock markets of affected
countries and that (ii) the impact of COVID-19 on stock markets
has bidirectional spill-over effects between Asian countries and
European and American countries. However, there is no evidence
that COVID-19 negatively affects these countries’ stock markets
more than it does the global average. The findings contribute to
the research on economic impact of the pandemic by providing
empirical evidence that COVID-19 has spill-over effects on stock
markets of other countries. The results also provide a basis for
assessing trends in international stock markets when the situation
is alleviated worldwide.

Introduction
An unanticipated disease called coronavirus disease 2019 (COVID-19) has spread
worldwide since the end of 2019. In December 2019, Wuhan, a central city in China,
reported the first COVID-19 case. On 3 January 2020, the Wuhan Health Committee
reported 44 cases of viral pneumonia of unknown cause. Due to mass migration during
the Chinese New Year and Wuhan’s geographic location as an important transporta-
tion hub in China, the disease has spread silently to other provinces in China since
early January 2020. On 19 January, the first three confirmed cases outside Wuhan were
reported, one in Guangdong and two in Beijing. Since 10 am on 23 January, bus,
metro, ferry and long-distance passenger transportation in Wuhan had been sus-
pended. As a further precaution, all outbound trains and flights were stopped. The
Chinese government continues to adopt various public health policies, such as travel
restrictions, curfews and school closures to prevent the spread of the epidemic. On 30
January 2020, the World Health Organisation (WHO) issued its first global alert

CONTACT Junyi Liu jliu@soka.edu Department of Economics, Soka University of America, Aliso Viejo, USA
ß 2020 Economic and Political Studies
276 Q. HE ET AL.

regarding COVID-19 (WHO 2020a). As the number of confirmed cases soared

throughout the world, the WHO announced it as a pandemic on 11 March 2020
(WHO 2020b). So far, the countries with the largest number of confirmed cases in the
world include the People’s Republic of China, Italy, South Korea, France, Spain,
Germany, Japan and the United States of America. The outbreak centre has been grad-
ually shifted from China to Europe and the USA. In March 2020, some researchers and
media outlets reported how this terrible disease would affect the economy of the
affected countries. Duan, Wang, and Yang (2020) point out that those small and
medium-sized enterprises, which play a significant role in China, have been severely
affected due to decline in social consumption and rigid expenditure on rents, wages
and interests. This could further affect the stability of the banking system. When the
China A-share market reopened on 3 February, the Shanghai Securities Composite
Index declined by nearly 8% in response. The initial impact of this event so far on the
stock markets of the countries with the highest number of confirmed cases is examined
in this paper.
Since the public transit in Wuhan was suspended on 23 January, there have been
several articles in the popular press indicating that COVID-19 is having a tremendous
impact on the economies of the affected countries. A report titled ‘Spread and Stutter’
in The Economist (2020a) emphasises that COVID-19 is a grave threat to the poise of
global markets. ‘The Right Medicine for the World Economy’ (The Economist 2020c)
also states that as fears grow about the impact of the COVID-19 virus, stock markets
have slumped. Now there are signs that the virus is moving from traders’ screens to the
real economy. In the same month, ‘Sneezy Money’ (The Economist 2020b) notes that
‘One of the ways virus damages the economy is to interfere with the supply of labour,
goods and services. But more serious is its spill-over effect. Goldman Sachs estimates
that global GDP will contract at an annualised rate of 2.5% in the first quarter’.
Another article entitled ‘Tracking the Economic Impact of COVID-19 in Real Time’
(The Economist 2020d) also points out that the modelling by academics at the
Australian National University suggests that the GDP in America and Europe would be
2% lower than it would have been in the absence of a pandemic and perhaps as much
as 8% lower if the rate of deaths is many times higher than expected. Stock markets are
pricing in fear.
Black Swan events, including terrorist attacks and epidemics, will cause shock, fear
and panic among international investors and result in a sharp panic-selling response
(Burch, Emery, and Fuerst 2016). An expanding body of literature, such as Carter and
Simkins (2004), Chen and Siems (2004), Nikkinen et al. (2008), Kollias et al. (2011),
and Papakyriakou, Sakkas, and Taoushianis (2019), has addressed the impact of terro-
rists on the international stock markets. As Chen and Siems (2004) point out, terrorist
attacks are unexpected events which seriously affect normal life and result in panic-sell-
ing ensues. Epidemics will inevitably have the same effect. Nippani and Washer (2004)
focus on stock indices of eight seriously affected countries during the SARS period and
find that SARS had no negative impact on the affected countries’ stock markets with
the exception of those based in China and Vietnam. Chen, Jang, and Kim (2007) study
the impact of the SARS outbreak on the performance of hotel stocks in exchanges
of the Chinese mainland and Taiwan and find a significant negative impact.
 ECONOMIC AND POLITICAL STUDIES 277

The unfortunate situation created by COVID-19 gives us a unique opportunity to

gauge the impact of an unexpected and dreaded disease on the economy of affected
nations while globalisation continues under debates. The COVID-19 virus first broke
out in China and exerted a direct influence on China’s stock market. Fluctuations in
China’s stock market may have spill-over effects on others due to the breadth and
depth of interdependence among contemporary economies. In China, the spread of the
disease is gradually being curtailed, but it continues to spread in other countries, some
of which might adversely influence back on China’s stock market.
To this end, we establish domestic and non-domestic COVID-19 timelines with news
reports and then examine the separate impacts that COVID-19 has had on the stock mar-
kets of the People’s Republic of China, Italy, South Korea, France, Spain, Germany, Japan
and the USA as represented by their leading stock indices. The impact of COVID-19 on
these stock indices is explored by examining the mean returns of the indices in the dis-
ease-affected period vis-
a-vis a pre-event period using t-tests and Mann–Whitney non-
parametric tests. Furthermore, the stock indices of these affected countries are compared
with the S&P 1200 Global Index. The latter comparison is to determine if the affected
stock markets’ performance is significantly below the global average.
We find that COVID-19 had a negative and limited impact on the stock markets of
China and other Asian countries in the early stage of the epidemic. With the spill-over
effect on European and American countries, the indices underperformed after the epi-
demic, as opposed to the comparison period, in the middle and late stages. The evi-
dence found in the non-domestic timeline suggests that the development of COVID-19
has had a negative impact on the European and USA stock markets, a condition that
will intensify in the short term as the virus spreads.
The impact of COVID-19 on the European and USA stock markets has a backflow
effect on the Asian stock markets, especially on China’s stock market. Even as the
spread of the disease in China has been gradually stabilised, it has started to break out
in other countries. In the midst of this global spread, China’s stock market has borne a
glancing blow due to the spill-over effect. But if we exclude the case of China in the
short event window of the domestic timeline, there is no evidence that COVID-19 has
a negative impact on the major stock indices in these countries compared to the S&P
1200 Global Index.
Our paper makes contributions to the literature and international investment in
three aspects. First, it documents the latest impact of COVID-19 on stock markets of
the first group of countries where the epidemic started. Second, it investigates the spill-
over effects of China’s stock market on those countries and the spill-over effects of
their stock markets back on China by defining domestic and non-domestic COVID-19
timelines. Last, it provides a reference for assessing trends in international stock mar-
kets after the pandemic subsides.
The rest of the paper is organised as follows. The following section presents the data
and methodology. The next section describes and analyses the empirical results. The
last section concludes.
278 Q. HE ET AL.

Data and methodology

To examine the impact of COVID-19, the following stock indices are chosen: the CSI
300 Index to represent the People’s Republic of China, the FTSE MIB Index to repre-
sent Italy, the Korea Composite Index to represent South Korea, the CAC-40 Index to
represent France, the SMSI Index to represent Spain, the DAX Index to represent
Germany, the Nikkei 225 Index to represent Japan, and the S&P 500 Index to represent
the USA. The above indices are arguably the most representative indices of these coun-
tries’ stock markets in the world press. The data for the daily closing value and daily
return of each of these indices for the period of 1 June 2019 to 16 March 2020 are col-
lected from the web portal ‘Investing.com’ (cn.investing.com).
We use the stock indices of these eight countries, which are considered the represen-
tative cases in the study, to warrant some explanations. First of all, because the WHO
did not report the list of countries and regions most affected by the epidemic, we ini-
tially select eight countries and regions with the largest number of confirmed cases in
the world on 16 March 2020. Secondly, Japan and the Diamond Princess cruise line
calculated the number of confirmed cases separately, but considering that the Diamond
Princess pulled up alongside a Japanese dock and all its members entered Japan, the
two parts of the data are added together to calculate the number of confirmed cases in
Japan. Finally, because there is no stock index in Iran, and other commodity indices
cannot be compared horizontally in this paper, Iran is removed from the list of coun-
tries. The USA, which ranks ninth in the number of confirmed cases in the time when
this paper is being written, is added. The final list of countries studied in this paper
contains the People’s Republic of China, Italy, South Korea, France, Spain, Germany,
Japan and the USA.
Several sources of COVID-19 news, which first appeared in the press at the close of
2019, are examined to find the exact chronology of the occurrence of COVID-19. On 3
January 2020, 44 cases of viral pneumonia of unknown cause, known as COVID-19
later, were reported by the Wuhan Health Committee. On 23 January, a strict blockade
was imposed in Wuhan to prevent the spread of the epidemic to other areas. This is
considered a sign of the start of an outbreak in China. The WHO issued the first global
alert on 30 January, which meant that the international epidemic situation has shown a
slow deterioration trend. Other warnings and announcements followed in subsequent
weeks. With the joint efforts of various segments of the Chinese society, the closure of
the last mobile cabin hospital in Wuhan on 10 March suggests that the epidemic situ-
ation in China has eased. However, on 11 March, COVID-19 was still characterised as
a pandemic by the WHO. So far, the centre of COVID-19 has gradually moved from
China to Europe, with confirmed cases increasing and outbreaks beginning to erupt.
Considering the time difference between the whole process of outbreak and mitiga-
tion in China and that in the world, it is unlikely that a study at this stage of events
will be able to distinguish its actual impact on the stock market. In this paper, we have
two timelines for the outbreak of COVID-19 in China and the outbreak in other coun-
tries, and the stock indices in the two parallel timelines are studied respectively. This
approach lets us explore the spill-over effect of the outbreak in China on the inter-
national community, as well as the spill-over effect of the outbreak in other countries
on China. Due to the fact that the pandemic has not been alleviated worldwide yet, we
 ECONOMIC AND POLITICAL STUDIES 279

can only base our empirical research on the outbreak stage in the assigned timeline,
while also providing a reference for the trend of stock markets when the situation is
alleviated worldwide.
For the China’s timeline, the entire period of study is divided into several sub-peri-
ods in order to examine the impact of COVID-19, and the main time points are related
to the important events of the epidemic within China. The first sub-period examined is
from 3 January 2020 to 22 January 2020. We identify this sub-period as the pre-event
window. We hypothesise that there is a negative impact on the stock indices of the ser-
iously affected countries. More specifically, we suspect that China’s indices could bear
some of the worst blows because of newspaper reports of COVID-19.
We mark the actual event period as the beginning when Wuhan announced the
closure of public spaces, i.e. 23 January 2020. As mobile cabin hospitals specialise in
treating novel coronavirus infected patients with mild symptoms and suspected cases,
the closure of the last mobile cabin hospital in Wuhan on 10 March implies that the
large-scale transmission in China had come to an end, which can be regarded as a sign
of domestic epidemic mitigation. The period from 23 January 2020 to 10 March 2020
is thus called the ‘long event window’, and it examines the impact of the whole battle
against COVID-19 in China. A ‘short event window’ is also looked at to assess the
immediate impact of the closure of Wuhan city, and this runs from 23 January 2020 to
3 February 2020, ten days after the event. Our hypothesis for both the short event win-
dow and long event window is that COVID-19 has a negative impact on the stock mar-
ket index of China and spill-over effects on other indices.
The performance of the stock market indices mentioned above are from 1 June 2019
to 2 January 2020. The daily returns of these stock indices are grouped into the pre-
event window, short event window and long event window for comparison. Simple het-
eroscedastic t-tests and the non-parametric Mann–Whitney (1947) tests are conducted.
The performance of these indices during the three periods are also compared with the
performance of the S&P 1200 Global Index. For example, to compare the performance
of the FTSE MIB Index with the global index in the short event window, the daily
returns of the two indices are from 23 January 2020 to 3 February 2020. We infer that
if the FTSE MIB Index were more negatively affected than the rest of the world, it
would underperform the world index.
For the timeline of the selected countries in this paper, the above segmentation and
testing approaches also apply. The entire period of study is divided into several sub-
periods, and the main time points are related to the important events of the epidemic
outside China. The ‘pre-event window’ is from 30 January 2020 to 10 March 2020.
This represents the period from the appearance of symptoms outside China to the out-
break of the pandemic in the world. Since the pandemic is not over yet, the data col-
lected are up to 22 March 2020. The period from 11 March 2020 to 22 March 2020 is
called the ‘short event window’, and it examines the impact of the battle with COVID-
19 outside China since the outbreak. The hypothesis for the short event window is that
COVID-19 has a negative impact on the stock market indices of the whole world. At
present, we can only forecast the situation in the long event window of the timeline of
selected countries according to the domestic timeline. The performance of the stock
280 Q. HE ET AL.

market indices mentioned above is compared from 1 June 2019 to 29 January 2020.
The heteroscedastic t-tests and non-parametric Mann–Whitney tests are used.

Empirical results
We start by looking at the results of the domestic timeline. The mean returns, standard
deviations, t-statistics and statistical significance levels for the pre-, short, and long
event windows of the domestic timeline using the t-tests are presented in Table 1. The
table also includes a column showing the number of trading days for each window.
According to Chen and Siems (2004), the t-statistics essentially test the significance of
the economic impact of an event on the capital market as measured by the deviation of
index returns from their average. If the event had no consequence, one would expect
an insignificant return deviation.
Panel A shows that each index had a positive average daily return over the compari-
son period, indicating these stock markets were performing well before the outbreak of

Table 1. Differences in mean returns of domestic timeline.

Number of Event group’s mean Event group’s
Index trading days and std. dev. t-value
Panel A: comparison period from 1 June 2019 to 2 January 2020
CSI 300 146 0.10% (0.91%)
FTSE MIB 148 0.13% (0.95%)
Korea Composite 145 0.05% (0.78%)
CAC-40 151 0.10% (0.84%)
SMSI 151 0.04% (0.79%)
DAX 147 0.09% (0.85%)
Nikkei 225 144 0.10% (0.80%)
S&P 500 149 0.12% (0.77%)
Panel B: pre-event window from 3 January2020 to 22 January 2020
CSI 300 14 0.03% (0.83%) 0.51
FTSE MIB 14 0.04% (0.61%) 0.64
Korea Composite 14 0.03% (0.88%) 1.15
CAC-40 14 0.04% (0.41%) 0.61
SMSI 14 0.10% (0.44%) 0.66
DAX 14 0.07% (0.65%) 0.10
Nikkei 225 12 0.14% (1.22%) 0.16
S&P 500 13 0.15% (0.47%) 0.16
Panel C: short event window from 23 January 2020 to 3 February 2020
CSI 300 2 5.49% (3.38%) 8.28
FTSE MIB 8 0.12% (1.78%) 0.68
Korea Composite 6 1.12% (1.25%) 3.47
CAC-40 8 0.37% (1.31%) 1.50
SMSI 8 0.23% (1.08%) 0.93
DAX 8 0.43% (1.40%) 1.64
Nikkei 225 8 0.56% (1.09%) 2.12
S&P 500 8 0.27% (1.03%) 1.36
Panel D: long event window from 23 January 2020 to 10 March 2020
CSI 300 28 0.02% (2.33%) 0.44
FTSE MIB 34 0.79% (2.60%) 3.46
Korea Composite 32 0.44% (1.69%) 2.45
CAC-40 34 0.74% (2.07%) 3.82
SMSI 34 0.71% (2.05%) 3.51
DAX 34 0.73% (2.01%) 3.72
Nikkei 225 32 0.58% (1.60%) 3.51
S&P 500 33 0.40% (2.46%) 2.14
Notes: Std. dev. in parentheses. Significant at the 5% level; significant at the 1% level.
 ECONOMIC AND POLITICAL STUDIES 281

COVID-19 in China. The hypothesis tested is whether the outbreak has a significant
negative effect on stock market returns.
Panel B compares the mean returns of the pre-event window with the compari-
son period. It appears that half of these indices were adversely affected shortly
before the outbreak, but not in a statistically significant way.
In the short event window seen in Panel C, the CSI 300 Index and the Korea
Composite Index have a mean return that underperformed the comparison period at
the 1% level of significance, while the Nikkei 225 Index underperformed its compari-
son period at the 5% level. The outbreak of COVID-19 in Asian countries seems to
offer a satisfactory explanatory basis for this market reaction.
The results over the long event window are shown in Panel D. Except for the CSI
300 Index, all other indices underperformed the comparison period. The Korea
Composite Index and the S&P 500 Index have mean returns that differ from the com-
parison period at the 5% level of significance. The FTSE MIB Index, the CAC-40
Index, the SMSI Index, the DAX Index and the Nikkei 225 Index all underperformed
the comparison period at the 1% level.
It is also interesting to note that, the stock market of China, as the first coun-
try to be hit by the outbreak of COVID-19, was not severely affected. Thus,
China’s stock market shows a high degree of resilience compared to the rest of
the world by rebounding performance following its initial plunge. Our empirical
results indicate that the outbreak of COVID-19 had a negative but limited impact
on stock markets.
Furthermore, huge drops are observed in the stock markets of the countries that
had not yet been severely affected by the virus. A tentative explanation for this seem-
ingly counterintuitive finding is that the impact of COVID-19 in the stock markets of
Asian countries has spill-over effects on European and American countries. The spill-
overs appear to be related to the spread of COVID-19 and the shock, fear and panic
among international investors.
The results from non-parametric Mann–Whitney tests are presented in Table 2 and
partly consistent with those in Table 1. Perme and Manevski (2019) point out that the
Mann–Whitney tests’ null hypothesis is that the two random variables share the distri-
bution. It is often seen as the non-parametric alternative of the t-test.
In the pre-event window shown in Panel B, the median returns for the indices are
not statistically different from the comparison period. In the short event window
shown in Panel C, the CSI 300 Index (1% level) and the Korea Composite Index (5%
level) underperformed the comparison period.
In the long event window shown in Panel D, the Nikkei 225 Index underperformed
its comparison period at the 5% level of significance. The other six countries underper-
formed, as opposed to the comparison period, but not in a way that was statistically
significant. Surprisingly, the CSI 300 Index outperformed the indices in the reference
period. Our findings confirm that COVID-19 had negative but limited impact on stock
markets. Though psychological factors cannot be directly observed, it is possible that
the elapsed time had a calming effect, as investors were able to take additional time to
absorb the news of the outbreak and avoid panicking. It is also possible that Chinese
investors boosted stocks out of a heightened sense of patriotism.
282 Q. HE ET AL.

Table 2. Differences in median returns of domestic timeline.

Index Number of days Median return W-value
Panel A: comparison period from 1 June 2019 to 2 January 2020
CSI 300 146 0.06%
FTSE MIB 148 0.11%
Korea Composite 145 0.07%
CAC-40 151 0.15%
SMSI 151 0.05%
DAX 147 0.58%
Nikkei 225 144 0.12%
S&P 500 149 0.09%
Panel B: pre-event window from 3 January 2020 to 22 January 2020
CSI 300 14 0.11% 11,823
FTSE MIB 14 0.25% 12,229
Korea Composite 14 0.49% 11,401
CAC-40 14 0.02% 12,759
SMSI 14 0.23% 12,764
DAX 14 0.01% 11,957
Nikkei 225 12 0.32% 11,239
S&P 500 13 0.19% 12,145
Panel C: short event window from 23 January 2020 to 3 February 2020
CSI 300 2 5.49% 11,023
FTSE MIB 8 0.29% 11,631
Korea Composite 6 1.14% 11,269
CAC-40 8 0.14% 12,155
SMSI 8 0.49% 12,030
DAX 8 0.40% 11,584
Nikkei 225 8 0.77% 11,222
S&P 500 8 0.01% 11,875
Panel D: long event window from 23 January 2020 to 10 March 2020
CSI 300 28 0.35% 12,564
FTSE MIB 34 0.06% 13,851
Korea Composite 32 0.15% 13,275
CAC-40 34 0.21% 14,524
SMSI 34 0.03% 14,302
DAX 34 0.21% 13,891
Nikkei 225 32 0.47% 13,287
S&P 500 33 0.16% 14,096
Note: significant at the 5% level; significant at the 1% level.

The returns on each of these indices are compared to the S&P 1200 Global Index
returns for the pre-, short and long event windows. Such a comparison shows which of
these indices performed negatively as compared with the global average for the affected
periods. Table 3 compares the event period returns for the eight countries with the
S&P 1200 Global Index using t-tests (Panel A) and non-parametric Mann–Whitney
tests (Panel B).
Looking at the grand picture of all event period results reported in Table 3, there is
no strong evidence that these major indices of the stock markets differ significantly
from the S&P 1200 Global Index. The only market with a statistically significant nega-
tive mean return over three event horizons was China’s over the short event window.
The mean return was 5.49%, significant at the 1% level under the t-tests (Panel A)
and at the 5% level under the Mann–Whitney tests (Panel B). This can be explained by
the fact that China was the first country in the world to be hit by the outbreak and that
the first site of an outbreak suffers a comparatively stronger negative impact compared
with the global average. The findings further confirm the significantly negative but lim-
ited impact of COVID-19 on stock markets.
 ECONOMIC AND POLITICAL STUDIES 283

Table 3. Returns relative to global index of domestic timeline.

Pre-event period Short event window Long event window
3 January 2020 23 January 2020– 23 January 2020
Index –22 January 2020 3 February 2020 –10 March 2020
Panel A: t-test on daily returns relative to S&P 1200
Mean t-value Mean t-value Mean t-value
S&P 1200 0.10% (0.33%) 0.34% (0.77%) 0.46% (1.90%)
CSI 300 0.03% (0.83%) 0.56 5.49% (3.38%) 4.67 0.02% (2.33%) 0.82
FTSE MIB 0.04% (0.61%) 0.76 0.12% (1.78%) 0.33 0.79% (2.60%) 0.61
Korea Composite 0.03% (0.88%) 0.79 1.12% (1.25%) 1.44 0.44% (1.69%) 0.05
CAC-40 0.04% (0.41%) 0.99 0.37% (1.31%) 0.32 0.74% (2.07%) 0.59
SMSI 0.10% (0.44%) 1.35 0.23% (1.08%) 0.12 0.71% (2.05%) 0.52
DAX 0.07% (0.65%) 0.17 0.43% (1.40%) 0.16 0.73% (2.01%) 0.57
Nikkei 225 0.14% (1.22%) 0.11 0.56% (1.09%) 0.46 0.58% (1.60%) 0.29
S&P 500 0.15% (0.47%) 0.31 0.27% (1.03%) 0.15 0.40% (2.46%) 0.11
Panel B: Mann–Whitney test
Median W-value Median W-value Median W-value
S&P 1200 0.08% 0.23% 0.23%
CSI 300 0.11% 193 5.49% 3 0.35% 987
FTSE MIB 0.25% 188 0.29% 74 0.06% 1,199
Korea Composite 0.49% 229 1.14% 37 0.15% 1,078
CAC-40 0.02% 175 0.14% 46 0.21% 1,175
SMSI 0.23% 162 0.49% 47 0.03% 1,192
DAX 0.01% 196 0.40% 69 0.21% 1,163
Nikkei 225 0.32% 175 0.77% 64 0.47% 1,059
S&P 500 0.19% 189 0.01% 72 0.16% 1,136
Notes: Std. dev. in parentheses. Significant at the 5% level; significant at the 1% level.

Before we turn to the timeline of the selected countries, we first sum up our empir-
ical investigation in the domestic timeline at the first stage. The evidence suggests that
COVID-19 had a negative but limited direct impact on the stock markets of Asian
countries. Furthermore, it appears that such impact has the spill-over effects on
European and American countries. Except in China, none of these indices significantly
underperformed the S&P 1200 Global Index in either event period.
We now proceed with the second stage of our investigation focussing on the impact of
outbreak of COVID-19 in selected countries. Given the similarity between the outbreak of
COVID-19 in China and in other countries, conclusions obtained from the domestic
timeline may be further confirmed in the foreign timeline. Two further research questions
are investigated:

 Does the outbreak of COVID-19 significantly affect stock markets in

selected countries?
 Does the impact of COVID-19 on stock markets in Europe and the USA have a
spill-over effect on stock markets of China?

The mean returns, standard deviations, t-statistics and statistical significance levels
of the foreign timeline using the t-tests are presented in Table 4. Panel A shows that
each index has a positive median daily return during the comparison period. In the
pre-event window shown in Panel B, except for the CSI 300 Index, the other stock indi-
ces have been significantly negatively affected. The MIB Index, the CAC-40 Index, the
SMSI Index, the DAX Index (at the 1% level) and the Korea Composite Index, the
284 Q. HE ET AL.

Table 4. Differences in mean returns of foreign timeline.

Index Number of trading days Event group’s mean and std. dev. Event group’s t-value
Panel A: comparison period from 1 June 2019 to 29 January 2020
CSI 300 161 0.07% (0.93%)
FTSE MIB 167 0.12% (1.00%)
Korea Composite 162 0.05% (0.83%)
CAC-40 170 0.08% (0.84%)
SMSI 170 0.03% (0.78%)
DAX 166 0.08% (0.86%)
Nikkei 225 161 0.08% (0.85%)
S&P 500 167 0.11% (0.76%)
Panel B: pre-event window from 30 January 2020 to 10 March 2020
CSI 300 27 0.10% (2.29%) 0.13
FTSE MIB 29 1.00% (2.68%) 4.14
Korea Composite 29 0.35% (1.69%) 1.98
CAC-40 29 0.84% (2.15%) 4.08
SMSI 29 0.82% (2.16%) 3.90
DAX 29 0.81% (2.08%) 3.98
Nikkei 225 27 0.59% (1.69%) 3.19
S&P 500 28 0.42% (2.65%) 2.12
Panel C: short event window from 11 March 2020 to 22 March 2020
CSI 300 8 1.37% (1.69%) 4.05
FTSE MIB 8 1.50% (7.46%) 2.54
Korea Composite 8 2.69% (4.50%) 6.17
CAC-40 8 1.83% (6.22%) 3.56
SMSI 8 1.77% (6.64%) 3.25
DAX 8 2.07% (5.61%) 4.20
Nikkei 225 7 2.55% (2.08%) 7.43
S&P 500 8 2.52% (7.32%) 4.40
Notes: Std. dev. in parentheses. Significant at the 5% level; significant at the 1% level.

Nikkei 225 Index and the S&P 500 Index (at the 5% level) underperformed the com-
parison period.
These results differ from the results obtained from Panel C in Table 1, which
could tentatively be interpreted that the negative impact over the pre-event period
is derived from the spill-over effects of COVID-19 in Asian countries. It is worth
mentioning that the CSI 300 Index has a good performance over the pre-event
period, which is consistent with the results shown in Panel D of Tables 1 and 2.
The results of the short event window are shown in Panel C. All indices underper-
formed the comparison period at the 1% level of significance, even further deteriorated
compared with the pre-event period. Recent articles explain why the stock market has
plummeted. A report titled ‘What is the Root Cause of the Continued Collapse of US
Stocks?’ (Wang 2020) points out that the external trigger of the sharp decline of USA
stocks is the market panic caused by the COVID-19 epidemic and Saudi Arabia’s oil
price war, depicting COVID-19 as the straw that broke the camel’s back. The findings
imply that the COVID-19 epidemic bears direct responsibility for part of the sharp
decline, which confirms the conclusion that the outbreak of COVID-19 significantly
affected the stock markets.
It is worth noting that the CSI 300 Index underperformed the comparison period at
the 1% level as well, despite the fact that the COVID-19 epidemic has eased in China.
It would appear that the impact of COVID-19 on stock markets in Europe and the
USA has a spill-over effect on Chinese stock markets. From the findings shown in
 ECONOMIC AND POLITICAL STUDIES 285

Table 5. Differences in median returns of foreign timeline.

Index Number of days Median return W-value
Panel A: comparison period from 1 June 2019 to 29 January 2020
CSI 300 161 0.06%
FTSE MIB 167 0.25%
Korea Composite 162 0.07%
CAC-40 170 0.14%
SMSI 170 0.00%
DAX 166 0.14%
Nikkei 225 161 0.47%
S&P 500 167 0.09%
Panel B: pre-event window from 30 January 2020 to 10 March 2020
CSI 300 27 0.35% 14,886
FTSE MIB 29 0.05% 16,876
Korea Composite 29 0.06% 15,857
CAC-40 29 0.23% 17,540
SMSI 29 0.01% 17,302
DAX 29 0.27% 16,831
Nikkei 225 27 0.39% 15,652
S&P 500 28 0.23% 16,770
Panel C: short event window from 11 March 2020 to 22 March 2020
CSI 300 8 1.37% 14,107
FTSE MIB 8 1.02% 14,604
Korea Composite 8 3.31% 14,334
CAC-40 8 0.63% 15,193
SMSI 8 0.20% 15,197
DAX 8 0.21% 14,517
Nikkei 225 7 2.27% 14,077
S&P 500 8 4.61% 14,912
Note: Significant at the 5% level; significant at the 1% level.

Tables 1 and 4, the bidirectional spill-over effect caused by the outbreak of COVID-19
is confirmed.
Table 5 shows the returns of the pre- and short event windows in the timeline of the
selected countries compared with the comparison period using the non-parametric
Mann–Whitney tests. In the pre-event window shown in Panel B, the DAX Index
underperformed the comparison period at the 5% level of significance. In the short
event window shown in Panel C, the CSI 300 Index, the Korea Composite Index and
the Nikkei 225 Index (1% level) underperformed the comparison period.
Considering that the pandemic has not peaked while this paper is being written, the
empirical results of the domestic timeline for the long event window provide a refer-
ence for the trend of stock markets when COVID-19 eventually subsides. According to
the results in Panel D of Tables 1 and 2, we can predict that, if the pandemic were to
be controlled within two months, the impact of COVID-19 on stock markets would be
limited. Andersen (2020) also notes that in the research papers of formally modelling
pandemic scenarios, many find a large short-run economic impact, but none of them
finds a significant long-run impact, even in a very severe scenario.
There may be several factors that make a potential pandemic-generated economic
slowdown different from usual recessions. First, recent recessions have been accompa-
nied by large-scale reallocation of labour and other resources across sectors. By con-
trast, workers unemployed or put on furlough because of coronavirus are likely to
resume their former positions. In other words, the former pattern of economic activity
286 Q. HE ET AL.

Table 6. Returns relative to global index of foreign timeline.

Pre-event period Short event window
Index 30 January 2020–10 March 2020 11 March 2020–22 March 2020
Panel A: t-test on daily returns relative to S&P 1200
Mean t-value Mean t-value
S&P 1200 0.02% (0.60%) 2.84% (8.23%)
CSI 300 0.10% (2.29%) 1.00 1.37% (1.69%) 0.50
FTSE MIB 1.00% (2.68%) 0.83 1.50% (7.46%) 0.34
Korea Composite 0.35% (1.69%) 0.25 2.69% (4.50%) 0.04
CAC-40 0.84% (2.15%) 0.65 1.83% (6.22%) 0.28
SMSI 0.82% (2.16%) 0.62 1.77% (6.64%) 0.29
DAX 0.81% (2.08%) 0.61 2.07% (5.61%) 0.22
Nikkei 225 0.59% (1.69%) 0.21 2.55% (2.08%) 0.09
S&P 500 0.42% (2.65%) 0.10 2.52% (7.32%) 0.08
Panel B: Mann–Whitney test
Median W-value Median W-value
S&P 1200 0.23% 1.60%
CSI 300 0.35% 868 1.37% 68
FTSE MIB 0.05% 849 1.02% 67
Korea Composite 0.06% 873 3.31% 68
CAC-40 0.23% 845 0.63% 66
SMSI 0.01% 856 0.20% 65
DAX 0.27% 837 0.21% 68
Nikkei 225 0.39% 763 2.27% 66
S&P 500 0.23% 821 4.61% 69
Notes: Std. dev. in parentheses. Significant at the 5% level; significant at the 1% level.

can be resumed, whereas usual recessions and their aftermath entail a reconfiguration
of economic activity. Second, a general recession is often prolonged by a lack of confi-
dence on the part of investors, firms and consumers. It seems logical, however, that
these groups would regain their confidence in the markets once the pandemic recedes.
Table 6 compares the daily returns with the S&P 1200 Global Index in the timeline
of the selected countries using t-tests (Panel A) and non-parametric Mann–Whitney
tests (Panel B). From the findings reported in Table 6, it appears that no unequivocal
picture seems to emerge when it comes to the market’s reaction in the foreign timeline
compared with the S&P 1200 Global Index. Over the pre- and short event windows,
the S&P 1200 Global Index has a return that is not significantly different from the eight
indices; this is consistent with the results obtained from Table 3. There is no evidence
that COVID-19 has a negative impact on the major stock indices in these countries
compared with the S&P 1200 Global Index.
Overall, the study of the timeline of the selected countries indicates that COVID-19
negatively affected stock markets. Specifically, the development of the COVID-19 pan-
demic has had a negative impact on the European and American stock markets and, as
the virus spreads, the negative impact will be also further intensified. We postulate,
however, that the impact on stock markets will be short-term rather than long-term.
Once again, it is worth noting that the impact of COVID-19 on the European and
American stock markets has a spill-over effect on the Asian stock market. When we
combine our study of the foreign timeline with our study of the domestic one, the
bidirectional spill-over effect caused by the outbreak of COVID-19 is confirmed.
 ECONOMIC AND POLITICAL STUDIES 287

Conclusion
This paper studies the direct and spill-over effects of COVID-19 on stock markets. The
development of the epidemic up to the date when this paper was written is divided
into two parallel timelines: the domestic timeline and the foreign timeline. Using con-
ventional t-tests and non-parametric Mann–Whitney tests, an empirical analysis is
conducted based on daily return data of stock markets in the People’s Republic of
China, Italy, South Korea, France, Spain, Germany, Japan and the USA.
Despite the facts that COVID-19 is fiercely hurting the world with its outbreak not
reaching a turning point and that the foreign timeline is still extending, the following
conclusions can be drawn. Evidence from the domestic timeline and the timeline of the
selected countries suggests that COVID-19 has a negative but short-term impact on the
stock markets of the eight affected countries. The impact of COVID-19 on stock mar-
kets has bidirectional spill-over effects between Asian countries and European and
American countries. Furthermore, except for China in the short event window of the
domestic timeline, there is no evidence that COVID-19 has a negative impact on the
major stock indices in these countries compared to the S&P 1200 Global Index.
These findings contribute to the research in economic impacts of the pandemic by
providing empirical evidence that COVID-19 has bidirectional spill-over effects on the
Chinese economy and seven other countries that are affected by the outbreak.
Admittedly, though, since there is no a pandemic mitigation period in the other coun-
tries yet while this paper is being written, this study merely provide a reference for the
trend of capital markets when the COVID-19 pandemic subsides worldwide.

Disclosure statement
No potential conflict of interest was reported by the authors.

Funding
This research is supported by Asia Research Centre, Renmin University of China
[20YYA01]. All remaining errors are ours.

References
Andersen, Karen. 2020. “Morningstar’s View: The Impact of Coronavirus on the Economy.”
Stock Strategist Industry Reports. https://www.morningstar.com/articles/971254/morning-
stars-view-the-impact-of-coronavirus-on-the-economy
Burch, Timothy R., Douglas R. Emery, and Michael R. Fuerst. 2016. “Who Moves Markets in
a Sudden Marketwide Crisis? Evidence from 9/11.” Journal of Financial and Quantitative
Analysis 51 (2): 463–487.
Carter, David A., and Betty J. Simkins. 2004. “The Market’s Reaction to Unexpected,
Catastrophic Events: The Case of Airline Stock Returns and the September 11th Attacks.”
The Quarterly Review of Economics and Finance 44 (4): 539–558.
Chen, Andrew H., and Thomas F. Siems. 2004. “The Effects of Terrorism on Global Capital
Markets.” European Journal of Political Economy 20 (2): 349–366.
288 Q. HE ET AL.

Chen, Ming-Hsiang, Soo Cheong Shawn Jang, and Woo Gon Kim. 2007. “The Impact of the
SARS Outbreak on Taiwanese Hotel Stock Performance: An Event-study Approach.”
International Journal of Hospitality Management 26 (1): 200–212.
Duan, Hongbo, Shouyang Wang, and Cuihong Yang. 2020. “Coronavirus: Limit Short-term
Economic Damage.” Nature 578 (7796): 515.
Kollias, Christos, Efthalia Manou, Stephanos Papadamou, and Apostolos Stagiannis. 2011.
“Stock Markets and Terrorist Attacks: Comparative Evidence from a Large and a Small
Capitalization Market.” European Journal of Political Economy 27 (S1): S64–S77.
Mann, Henry B., and Donald R. Whitney. 1947. “On a Test of Whether One of Two Random
Variables Is Stochastically Larger than the Other.” The Annals of Mathematical Statistics 18
(1): 50–60.
Nikkinen, Jussi, Mohammad M. Omran, Petri Sahlstr€ € o. 2008. “Stock Returns
om, and Janne Aij€
and Volatility Following the September 11 Attacks: Evidence from 53 Equity Markets.”
International Review of Financial Analysis 17 (1): 27–46.
Nippani, Srinivas, and Kenneth M. Washer. 2004. “SARS: A Non-event for Affected Countries’
Stock Markets?” Applied Financial Economics 14 (15): 1105–1110.
Papakyriakou, Panayiotis, Athanasios Sakkas, and Zenon Taoushianis. 2019. “The Impact of
Terrorist Attacks in G7 Countries on International Stock Markets and the Role of Investor
Sentiment.” Journal of International Financial Markets, Institutions and Money 61: 143–160.
Perme, Maja Pohar, and Damjan Manevski. 2019. “Confidence Intervals for the
Mann–Whitney Test.” Statistical Methods in Medical Research 28 (12): 3755–3768.
The Economist. 2020a. “Spread and Stutter.” 29 February. https://www.economist.com/finance-
and-economics/2020/02/27/markets-wake-up-with-a-jolt-to-the-implications-of-covid-19
The Economist. 2020b. “Sneezy Money.” 7 March. https://espresso.economist.com/
b0b9da81cf357c8884a06de8ef72bea0
The Economist. 2020c. “The Right Medicine for the World Economy.” 7 March. https://www.
economist.com/leaders/2020/03/05/the-right-medicine-for-the-world-economy
The Economist. 2020d. “Tracking the Economic Impact of Covid-19 in Real Time.” 14 March.
https://www.economist.com/united-states/2020/03/14/tracking-the-economic-impact-of-
covid-19-in-real-time
Wang, Youruo. 2020. “Meigu Chixu Baodie de Binggen zai Naer” [What Is the Root Cause of
the Continued Collapse of US Stocks]. Shanghai Zhengquan Bao [Shanghai Security News]
http://news.cnstock.com/news,bwkx-202003-4507256.htm
World Health Organisation. 2020a. “Public Health Emergency of International Concern
Declared.” 30 January. https://www.who.int/docs/default-source/coronaviruse/transcripts/ihr-
emergency-committee-for-pneumonia-due-to-the-novel-coronavirus-2019-ncov-press-brief-
ing-transcript-30012020.pdf?sfvrsn=c9463ac1_2
World Health Organisation. 2020b. “WHO Characterizes COVID-19 as a Pandemic.” 11
March. https://www.who.int/docs/default-source/coronaviruse/transcripts/who-audio-emer-
gencies-coronavirus-press-conference-full-and-final-11mar2020.pdf?sfvrsn=cb432bb3_2
Copyright of Economic & Political Studies is the property of Taylor & Francis Ltd and its
content may not be copied or emailed to multiple sites or posted to a listserv without the
copyright holder's express written permission. However, users may print, download, or email
articles for individual use.