The Impact of a Pandemic (COVID-19) on the Stock Markets : A Study on the Stock Markets of China, US and UK

Sammanfattning: The main aim of this research is to observe the impact of the current pandemic (COVID-19) on the stock markets and the focus has been on three countries: China, United Kingdom (UK) and United States (US). These three countries have been chosen to show the difference between the degrees of impact based on the different timings in which the respective countries contracted the virus. China is the country where the outbreak started; and so with no prior knowledge, the country’s stock markets experienced a sudden decline. Whereas, countries like the UK and the US could use the situation in China as a warning.The four months timeline (January, February, March, and April) helped in knowing the pattern of the impact on the stock markets which further guided us to find out that in this case the lack of economic activity (due to lockdown) had more negative impact on the stock markets than the rise in the number of new infected cases or the spread of the infectious virus.The graphs that we derived from the number of new infected cases and the stock market price indexes facilitated us to see the pattern of the trend lines for the stock markets and the new infected cases, it helped us to see the similarities and dissimilarities in the pattern of the trend lines and also to notice any parallel movements in the lines more easily.The forty days time frame is used to calculate the correlations between the changes in the stock markets price indexes and the changes in the new infected cases. For each country, the time varies as it is done by taking the day from which the number of new infected cases kept increasing consistently on average as the first day and then the 39 days that followed. Two correlations are calculated: the first one is for the first twenty days and the second one is for the last twenty days, to show the initial impact and thelater impact. And, through the correlation it is evident that in the beginning the relationship between the number of new infected cases and the stock markets is inversely linear and then it levels out. Moreover, it is clear to see that, due to globalization, stock markets are interconnected and the shock on one is being passed on to the others (spill-out effect). That is why we see the stock exchanges of all three countries having a similar pattern in their correlations. Theories like the Efficient Market Hypothesis, Behavioural Finance, and Rational Expectations served as a guide and channel for the flow of discussions and conclusions.