The Impact of COVID-19 on Developed & Emerging Capital Markets: A Comparative Study

Abstract

Undoubtedly, the outbreak of COVID-19 pandemic has had extensive and severe effects among sectors, including financial markets. Therefore, the purpose of this study is to examine the impact of COVID-19 crisis on developed and emerging capital markets. More specifically, the study compares the impact of COVID-19 on developed and emerging capital markets and shows which markets are most impacted by coronavirus. Based on MSCI market classification framework, all developed and emerging markets are selected and examined from the date of announcing COVID-19 as a pandemic on March 11, 2020 until August 31, 2020 and analyses daily returns, markets turnover, trading volumes, P/E ratios, markets earning and markets volatility using EGARCH of the selected indices. The study employs various statistical techniques to carry out the analysis. In addition, the study examines the circumstances and the reasons behind markets performance and discusses whether the performance is fairly justified or not, by checking the performance of each market and comparing it with the markets’ earnings. The findings show that developed and emerging markets have responded to COVID-19 in a similar way especially in terms of closing prices, where prices have declined at the beginning of the pandemic, then markets have recovered within a short period of time. Similarly, markets witnessed drop in trading turnover and volume, while their levels have not recovered up to the level prior to the pandemic, just few high hits in turnover and volume levels in few days during the pandemic.