Did the S.A.R.S. epidemic weaken the integration of Asian stock markets? Evidence from smooth time-varying cointegration analysis

Abstract

The purpose of this study is to examine the effect of the Severe Acute Respiratory Syndrome (S.A.R.S.) epidemic on the long-run relationship between China and four Asian stock markets. To this end, we first employ the advanced smooth time-varying cointegration model to investigate the existence of a time-varying cointegration relation among these markets and then employ the difference-indifferences approach to analyse whether or not the S.A.R.S. epidemic impacted the long-run relation between China and these four markets during the period 1998-2008, covering 5 years before and after the S.A.R.S. outbreak. Our results support the existence of a time-varying cointegration relation in the aggregate stock price indices, and that the S.A.R.S. epidemic did weaken the long-run relationship between China and the four markets. Therefore, stockholders and policy makers should be concerned about the influence of catastrophic epidemic diseases on the financial integration of stock market in Asia.

The COVID-19 Outbreak and Affected Countries Stock Markets Response

“…Taiwanese hotel stocks showed significant negative cumulative mean abnormal returns on and after the day of the SARS outbreak, indicating a significant impact of the SARS outbreak on performance in hotel stock. Mei-ping Chenet al, [22] analyzed the effect of the SARS epidemic on China's long-term relationship with four Asian stock markets their findings support the existence of a time-varying co-integration relationship in aggregate stock price indices, and they also found that the SARS epidemic has weakened China's long-term relationship with the four markets. Wang, Yang, and Chen [23] suggested that infectious disease outbreaks have a major impact on the performance of biotechnology stock in Taiwan.…”

The Impact of COVID-19 Pandemic on Global Stock Markets: An Event Study

“…For instance, the spread of contagious diseases induces a decline of economic activity and endures a major challenge for business profitability and continuity in extreme situations as lockdown (Adda, 2016). Moreover, a pandemic induced economic and financial shocks in one country spreads rapidly to others due to high levels of the interconnectedness of markets due to globalization and financial integration (Chen et al, 2018;Liu et al, 2020). Recently, Zhang et al (2020) show that global financial markets volatilities have increased substantially due to the COVID-19 pandemic outbreak, and the magnitude of volatility commensurate with the severity of the outbreak in each country (Khan et al, 2020).…”

COVID-19 and stock market volatility: An industry level analysis

“…Previous research has focused on the impact of pandemics such as SARS and EBOLA ( Goodell, 2020 ; Chen et al., 2007 , 2009 ; Baker et al., 2012 ; Wang et al., 2013 ; Bai, 2014 ; Del Giudice and Paltrinieri, 2017 ; Chen et al., 2018 ; Ichev and Marinč, 2018 ) on stock market performance. Given the enormity of the current pandemic, researchers have begun to examine the impact of COVID-19 and a clear pattern has emerged.…”