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Financial shocks of stock markets and COVID-19 pandemic: an empirical study on Asian countries

Authors:

P. M. D. S. Pathiraja ,

University of Kelaniya, LK
About P. M. D. S.
Department of Accountancy, Faculty of Commerce and Management Studies
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J. S. Kumari

Rajarata University of Sri Lanka, LK
About J. S.
Department of Accountancy & Finance, Faculty of Management Studies
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Abstract

The COVID-19 epidemic has affected and is still affecting the overall world and many countries are facing economic recessions due to the financial instability and new challenges with the serious variants of the new Coronavirus. With the higher level of uncertainty in the economy, economists and financial specialists are struggling to estimate and predict the future behavior of the economy even if it is a more challenging dilemma. The purpose of this study is to examine the financial shocks in the stock markets of India and Sri Lanka amid the pandemic. The paper employs time series regression analysis on secondary data collected from the Colombo Stock Exchange and the Bombay Stock Exchange of India with daily data from February 1st, 2020, to March 31st, 2021, which is designated as the COVID-19 pandemic era. COVID-19 positive cases have a significant impact on financial shocks in both countries whereas COVID-19 deaths do not affect financial shocks either in India or Sri Lanka. This study is the first study to examine the impact of the COVID-19 outbreak on financial shocks in both countries of India and Sri Lanka. It sheds a light on a new paradigm for demonstrating the most influencing factor of the COVID-19 outbreak towards financial shocks in the economy. Only two Asian countries have been considered as the population and future research studies can be conducted considering all Asian countries. Moreover, the model can be further developed by incorporating more variables with the dimensions of demand and supply side financial shocks. This study contributes to the existing theory by analyzing two models and the findings may have implications for the policymakers to make effective decisions during the pandemic without struggling with uncertainty in stock markets to reassure investors’ confidence by identifying the most forcing factor for financial shocks.
How to Cite: Pathiraja, P.M.D.S. and Kumari, J.S., 2022. Financial shocks of stock markets and COVID-19 pandemic: an empirical study on Asian countries. International Journal of Accounting and Business Finance, 8(1), pp.91–101. DOI: http://doi.org/10.4038/ijabf.v8i1.120
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Published on 25 Jul 2022.
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