Survival analysis in assessment of influence of the SARS-CoV-2 pandemic on probability and intensity of decline in the value of stock indices

Abstract

The aim of the study is to assess the strength of the world stock exchanges reaction to the SARS-CoV-2 coronavirus pandemic at the turn of 2019-2020. The risk and intensity of the decline in the values of the basic stock indices were analysed. The spreading pandemic within a few months covered all continents and had a significant impact on the socio-economic situation of all countries. The study used methods of duration analysis. The time of the 20% drop in stock market indices was studied. This is a value that is taken as a sign of crisis. Kaplan-Meier's estimator was used to assess the probability of indices' value decrease. The risk of decline was determined by means of a logit model and the intensity of the decline was determined by means of an empirical hazard estimator and a Cox proportional hazard model. The intensity and risk of decline of stock indices varied from continent to continent. The intensity was highest in the fourth and eighth week after the peak and was highest on European exchanges and then American and Asian exchanges (including Australia). The risk of falling stock indices was highest in America, followed by Europe, Asia and Australia, and lowest in Africa. Half of the analysed indices recorded a 20-percent drop in value after 52 days (median duration). The study is a prelude to further analyses related to the crisis and the normalisation of the situation on world stock exchanges. It allows to learn about the impact of the pandemic on the economic situation and to detect differences between the continents. The methods from the survival analysis are used in the study to assess the impact of the pandemic on the intensity and risk of decline in stock exchange indices.

Evaluation of Changes on World Stock Exchanges in Connection with the SARS-CoV-2 Pandemic. Survival Analysis Methods

“…We used the survival analysis methods in the research. Although they originate from demography and reliability theory, they are also widely used in social and economic research, including the financial market (Lunde and Timmermann 2004;Deville and Riva 2007;Markovitch and Golder 2008;Markowicz 2017a, 2018;Bieszk-Stolorz and Dmytrów 2021). It is applied, inter alia, to the analysis of the duration of companies and the analysis of crises.…”