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LITERATURE REVIEw
Historyhaswitnessedseveralepidemicdiseasesthathavecausedmanydeathstodate.Someexamples aretheBlackDeath“PlagueOutbreak”thatledtothedeathof75-100millionpeopleintheperiod between1347and1351,theCocoliztliepidemicthatoccurredinMexicoin1545-1548,thecholera epidemicbetween1899and1923,thesevereacuterespiratorysyndrome(SARS)thathadastrong impactinAsiaandCanadafrom2002to2003and,morerecently,Ebolaandswineflu.Coronavirus COVID-19(2019-nCoV)isatypeofoutbreakthatfirstappearedinDecember2019inWuhan,acity intheHubeiprovinceofChina.ItwaslaterdeclaredapandemicbytheWorldHealthOrganization (WHO)onMarch12,2020(RuizEstrada,Park,Koutronas,Khan,andTahir,2020).
TheCOVID-19epidemicnegativelyaffectsglobaltradeandsocialandculturallife,namely tourism,tradeingoods,production,andothersectorssuchastransport.Thus,ratingagenciessuch asMoody’sandStandard&PoorsreducedChina’sgrowthforecastfor2020.Inlinewithallthese adverseeffects,itseemsinevitablethatstockexchanges,economicgrowth,andexchangerateshave alsobeensimilarlyaffected(Liu,Manzoor,Wang,ZhangandManzoor,2020).
He,Liu,Wang,andYu(2020)examinedthedirecteffectsandrepercussionsofCOVID-19on thestockexchangeofthePeople’sRepublicofChina,Italy,SouthKorea,France,Spain,Germany, Japan,andtheUnitedStates.TheauthorsshowthatCOVID-19hasanegativebutshort-termimpact onstockexchangesinaffectedcountries.COVID-19’simpactonthesemarketshastwo-wayeffects betweenAsianandEuropeancountriesandAmericancountries.However,thereisnoevidence thatCOVID-19negativelyaffectsthesecountries’stockmarketsmorethantheglobalaverage.The resultscontributetoresearchconductedonthepandemic’seconomicimpact,providingempirical evidencethatCOVID-19hassideeffectsoncountries’stockexchanges.Gunay(2020),ontheother hand,examinedtheinfluenceoftheCOVID-19pandemicinsixstockmarketsandshowedthatthe correlationcoefficientsbetweentheChineseandTurkishstockmarketsdecreasedbetween2005and 2019.Duringthepandemic,thesecountriesregistereda20%increase,whileintheremainingmarkets, thecorrelationcoefficientsincreasedbutatasmallerrateofapproximately10%.
Ali,Alam,Rizvi(2020),Ashraf(2020),Liu,Manzoor,Wang,Zhang,andManzoor(2020),Zeren andHizarci(2020)analyzedtheimpactoftheglobalpandemic(COVID-19)oninternationalmarkets. Ali,Alam,andRizvi(2020)investigatedfinancialmarkets’reactionastheCoronavirusepicenter movedfromChinatoEuropeandthentotheUSA.TheirresultssuggestthatChina’s(initial)epicenter tendstostabilize,whileglobalmarketshaveenteredafreefall,especiallyinthecontagion(later) phase.Ashraf(2020)examinedthestockmarkets’responsetotheCOVID-19pandemic,usingdaily COVID-19data(confirmedcasesanddeaths)and64markets’profitabilityintheperiodfromJanuary
22,2020.onApril17,2020.Theauthorshowsthatthestockmarketsreactednegativelytothegrowth ofconfirmedcasesofCOVID-19.Inotherwords,thereturnsonthestockmarketsdecreasedasthe numberofconfirmedcasesincreased.Liu,Manzoor,Wang,Zhang,andManzoor(2020)studiedthe coronavirusoutbreak’simpacton21stockmarketindices.Theauthorsshowsignificantstructural breaksresultingfromtheCOVID-19outbreak.ZerenandHizarci(2020)analyzedtheeffectsofthe COVID-19epidemiconthestockmarketsfromJanuary23,2020,andMarch13,2020.Theauthors showthattheoutbreak’sglobalcaseshavecointegrationrelationswiththeSSE,KOSPI,andIBEX35 markets,butnotwiththeFTSEMIB,CAC40,DAX30markets.
Itisimportanttomentionthatthereisnonumericallyspecificdefinitionofastockmarket crash,butthetermcommonlyappliestocrashesofmorethan10%inastockmarketoveraperiodof severaldays.DuringtheweekofFebruary24-28,2020,stockmarketscrashedduetotheevolution oftheCovid-19pandemic.TheFTSE100fell13%,whiletheDJIAandS&P500Indexfell11-12% respectively,thelargestweeklydropsincethe2007-2008financialcrisis.OnMonday,March9,2020, afterthelaunchoftheoilpricewarbetweenRussiaandSaudiArabiain2020,theUKandother Europeanstockmarketsfellnearly8%.Asianmarketsfellsharply,andtheS&P500indexfell7.60%, whiletheItalianFTSEMIBfell11.17%(2,323.98points).OnMarch12,2020,adayafterPresident DonaldTrumpannouncedatravelbanfromEurope,stockpricesfelldramaticallyagain.DJIAfell
9.99%,thebiggestdailydropsinceBlackMonday(1987),despitetheFederalReserveannouncing itwouldinject$1.5trillionintothecurrencymarkets.TheS&P500andNASDAQeachfellabout 9.5%,whilemajorEuropeanstockmarketsfellmorethan10%.OnMarch16,2020,afteritbecame clearthatrecessionwasinevitable,theDJIAfell12.93%(2.997points)thebiggestdropinpoints sinceBlackMonday(1987),surpassingthepreviousweek’sdrop,theNASDAQCompositefell
12.32%,andtheS&P500indexfell11.98%(Akhtaruzzaman,Boubaker,Lucey,andSensoy,2020; Ali,Alam,andRizvi,2020;OkorieandLin,2020;Yan,Logan,Tu,andZhang,2020)
Insummary,thisresearchaimstocontributetotheprovideinformationtoinvestorsandregulators inEurope’sstockmarkets,whereindividualandinstitutionalinvestorsseekdiversificationbenefits andhelppromotetheimplementationofpoliciesthatcontributetotheefficiencyofthesemarkets. Intheprocess,theauthorswillexaminebothunidirectionalandbidirectionalcausalitiesbetweenthe
COVID-19dataseries(confirmedcasesanddeaths)andEurope’sfinancialmarkets.Tocorroborate thesecasualties,theauthorswillcheckifthemarketsunderanalysisarepredictableandifthearbitrage hypothesisisfeasible.
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