The Impact of the COVID-19 Pandemic on Stock Markets: Evidence From a VAR Model

Literature Review

History has witnessed several epidemic diseases that have caused many deaths to date. Some examples are the Black Death “Plague Outbreak” that led to the death of 75 -100 million people in the period between 1347 and 1351, the Cocoliztli epidemic that occurred in Mexico in 1545-1548, the cholera epidemic between 1899 and 1923, the severe acute respiratory syndrome (SARS) that had a strong impact in Asia and Canada from 2002 to 2003 and, more recently, Ebola and swine flu. Coronavirus COVID-19 (2019-nCoV) is a type of outbreak that first appeared in December 2019 in Wuhan, a city in the Hubei province of China. It was later declared a pandemic by the World Health Organization (WHO) on March 12, 2020 (Ruiz Estrada, Park, Koutronas, Khan, and Tahir, 2020).

The COVID-19 epidemic negatively affects global trade and social and cultural life, namely tourism, trade in goods, production, and other sectors such as transport. Thus, rating agencies such as Moody's and Standard & Poors reduced China's growth forecast for 2020. In line with all these adverse effects, it seems inevitable that stock exchanges, economic growth, and exchange rates have also been similarly affected (Liu, Manzoor, Wang, Zhang and Manzoor, 2020).