Stock Market Reaction to COVID-19: A Cross-Sectional Industry Analysis in Frontier Market

Abstract

The effect of COVID-19 on the efficiency of frontier stock markets at the industrial level has received little attention. This study aimed to analyze the Dhaka stock exchange’s immediate market response to the initial COVID-19 announcement at the industry level. An event study approach was used to cross-sectional daily returns of 311 enterprises grouped into seventeen industry groups to determine anomalous returns for a total of 21 trading days divided into seven separate event periods. According to the findings, the average abnormal return and cumulative average abnormal return for the total market return for the event and the subsequent days were both negative and statistically significant. A cross- sectional industrial analysis found that, except for the paper and printing industries, all other sectors produced a considerably abnormal and uniform negative abnormal return. The most substantial negative cumulative average abnormal returns were seen in event windows (0, 0), (0, +1) and (0, +5), which might be attributed to post-announcement drift and inefficient market activity. Furthermore, when comparing the results of the Manufacturing and Non-Manufacturing sectors, the Manufacturing sector had more gloomy outcomes. The COVID-19 epidemic was proven to have negative effects on several industry groups, including those in the pharmaceutical, information technology and telecommunications sectors, which were expected to benefit from the outbreak. This is one of the few empirical studies that investigate the impact of the epidemic on the cross-sectional industry stock return in frontier markets. The results of this research will aid both international and domestic investors in their pursuit of the best possible portfolio composition.

Market Efficiency and Stock Investment Loss Aversion Guide During COVID-19 Pandemic Events: The Case for Applying Data Mining

“…Therefore, it can be inferred that Taiwanese stock market prices will be inefficient in the late COVID-19 period. This result is similar to those of Chakraborty (2023) and Adnan and Johani (2023), confirming the inefficiency of equity markets such as India and Dhaka during the COVID-19 pandemic.…”

“…Chakraborty (2023) found that investors in the Indian stock market made irrational investment decisions during the COVID-19 crisis and that the inefficiency of the market brought instability to the stock market. Adnan and Johani (2023) confirmed the inefficient market activity during the pandemic in the Dhaka securities market over a short period. Under the EMH, past, present, and even future information sets are immediately, adequately, correctly, and effectively reflected in stock prices (Fama, 1970).…”

“…The stock market was driven by the oil and gas marketing and exploration departments and was highly dependent on commercial banks, fertilizers, power generation and distribution, and auto parts and accessories. Adnan and Johani (2023) confirmed that the manufacturing sector is more pessimistic than the nonmanufacturing sector due to the pandemic, but the pharmaceutical, IT, and telecommunications industries are expected to benefit from the pandemic. Farooq et al (2022) confirmed that equities in developing countries have significantly negative abnormal returns in response to the second wave of COVID-19.…”

“…Adnan and Johani (2023) confirmed that the manufacturing sector is more pessimistic than the non-manufacturing sector due to the pandemic, but the pharmaceutical, IT, and telecommunications industries are expected to benefit from the pandemic. Farooq et al (2022) confirmed that equities in developing countries have significantly negative abnormal returns in response to the second wave of COVID-19.…”