Reaction of stock market returns to COVID-19 pandemic and lockdown policy: evidence from Nigerian firms stock returns

Abstract

Given the effects COVID-19 pandemic on the financial sectors across the world, this study examined the reaction of stock returns of 201 firms listed in the Nigerian Stock Exchange to the COVID-19 pandemic and lockdown policy. We deployed both Pooled OLS and Panel VAR as estimation methods. Generally, the results from POLS show the stock market returns of the Nigerian firms reacted negatively more to the global COVID-19 confirmed cases and deaths than the domestic COVID-19 confirmed cases and deaths and lockdown policy. The results of the impulse response functions revealed that the effects of COVID-19 confirmed cases and deaths and lockdown policy shocks on stock returns oscillate between negative and positive before the stock market returns converge to the equilibrium in the long run. The FEVD results showed that growth in the COVID-19 confirmed cases, deaths and lockdown policy shocks explained little variations in stock market returns. Given our finding, we advocate for the relaxation of policy of lockdown and the combine use of monetary and fiscal policies to mitigate the negative effect of COVID-19 pandemic on stock market returns in Nigeria.

Is stock market in Sub-Saharan Africa resilient to health shocks?

“…These results are consistent with recent studies that documented similar findings (Babarinde, 2020; Onali, 2020), who found that the performance of stock markets in the US and other COVID-19 highly ravaged economies were not impacted by movements in the number of cases and fatalities in the first three months of 2020, except for the log of a number of documented cases in China. However, these results are inconsistent with other recent studies that validated the significant sensitivity of the stock market to the novel coronavirus (Abu et al , 2021; Ashraf, 2020; Takyi and Bentum-Ennin, 2020; Goodell, 2020; Sharif et al , 2020; Salisu et al , 2020; Akdag et al , 2021; Kumeka et al , 2021; Raifu et al , 2021). For example, Takyi and Bentum-Ennin (2020) reported that following the incidence of Coronavirus, the performance of stock markets in Africa dropped by around negative 2.7% to 21%.…”

“…Following the Coronavirus outbreak, several studies have investigated its effects on the general economy and particularly stock markets; e.g. Ashraf (2020), Al-Awadhi et al (2020), Kumeka et al (2021), Raifu et al (2021), etc. In a study on China, Al-Awadhi et al (2020) examined the contagious nature of Coronavirus and the sectoral stock market outcomes.…”

“…Therefore, our contribution to the current empirical literature is to scrutinize the resilience of financial markets in Africa to COVID-19 and other exogenous shocks. Extant studies on the growing literature either considered the effect of Coronavirus on oil markets (Iyke, 2020a, 2020b; Narayan, 2020a, 2020b; Devpura and Narayan, 2020; Salisu et al , 2020; Prabheesh et al , 2020), exchange rates (Iyke, 2020a, 2020b; Narayan, 2020a, 2020b) or stock markets (Takyi and Bentum-Ennin, 2020; Topcu and Gulal, 2020; He et al , 2020; Kumeka et al , 2021; Raifu et al , 2021) and the effects of Coronavirus-related investor attention on stock markets (Iyke and Ho, 2021). To the degree of our awareness, studies have not shown the resilience of stock markets to health shocks (Coronavirus outbreak).…”

COVID-19 pandemic and the exchange rate movements: evidence from six major COVID-19 hot spots

“…These results again suggest that there is a homogenous unidirectional causality running from LTD to LEXC. The causal association between exchange rate and COVID-19 fatalities could be due to the meltdown of financial markets during the lockdowns [ 38 ]. Moreover, most of the disturbances 11 during the crisis can be attributed to the channel running from COVID-19 deaths to exchange rates.…”

“…In contrast, the unprecedented worldwide clampdown measures due to the novel COVID-19 have their genesis in health problems. In early December 2019, the outbreak was caused primarily due to the SARS-COV-2 in Hubei province of China and spread to almost 216 countries in less than a year [ 38 , 49 ]. The rapid growth of the positively confirmed cases and the subsequent rise of the secondary waves (outbreaks) in the various parts of the world made the situation alarming.…”