Analysing the impact of Covid-19 on the stock market and building a pandemic robustness Index

Abstract

Since its inception from Wuhan, the coronavirus /covid-19, an infectious disease caused by the SARS-CoV-2 has wreaked havoc around the world and was declared as a pandemic in early March by the World Health Organisation. Within 4 months, the total number of confirmed patients exceeded 2 million and has caused a huge impact on the economic activities around the world. Against this backdrop, our main objective is to find out the impact of Covid-19 on the financial stock market and summarise the results. In our study, we first try to establish any possible linear relation between the number of daily cases and the stock market indicators for the Hong Kong Stock Market (using data from the Hang Seng Index). The uncertainty surrounding the virus and its impact, as well as the delay in the vaccines etc. has made the behaviour of stock market investors unpredictable and using some simple linear regression and statistical tools, we attempt to decipher the unpredictability. Furthermore, we analyse the relationship between the daily returns of the Hong Kong Stock Market and 16 other countries during various periods of the progression and spread of the pandemic which is then represented as a nodal network with Hong Kong at its centre in order to get an idea about how the relationship has changed with respect to the pandemic. In the final part of the project, we perform hypothesis testing on the daily returns and daily closing prices of 21 International markets using 2 different tests to establish if the pandemic has significantly impacted the above mentioned indicators and the results are compared with the findings from the GHS Index to verify the accuracy of the GHS index and to build a Pandemic Robustness Index whose range would indicate the likelihood (and the extent) of a particular country to be impacted by the pandemic.