THE EFFECT OF COVIB-19 ON STOCK RETURNS IN PAKISTAN

Abstract

Purpose The purpose ofthis study is to investigate the sensitivity of Pakistani stock returns from the effects of COVID-19 factors - infection cases and lockdowns. It is difficult for an investor to decide whether the stock returns are in positive or negative relation with the lockdown and infection cases. Knowing this relationship is important so the investor according to changing cases and lockdown periods. can decide their investment strategy Methodology & Design The models used in this study are based on regression by OLS technique for chosen time series data and PLS for panel data. For dependent variable Stock Returns, the model uses four independent variables namely New Covid Cases, Market Capitalization, Market Capitalization to Book Value Ratio and Lockdown Days. The data is also transformed by first order log differencing in order to eliminate problems associated with time series elements ofthe data. Findings The study leads to important results. In context to OLS models, firstly, only 35.3% ofthe are impacted by the pandemic while the rest 64.7% have no impact. Secondly, only 2.6% out of total pooled stocks and only 7.3% out ofthe covid affected stocks were impacted by both the new covid cases and lockdown. Thirdly, out ofthese stocks affected by pandemic, only 31.7% stocks are affected by new covid cases while the rest 75.6% are affected by lockdown. From the stock returns affected by the new covid cases, only 38.5% are negatively affected while 61.5% are positively affected. That means new covid cases are more likely to impact the stock returns positively. From the stock returns affected by lockdown days, only 3.2% are negatively affected while 96.8% are positively impacted. These findings are congruence to panel data model which suggest no association ofstocks returns with covid cases and positive association with lockdown cases. Therefore, it cannot be concluded that the impact of coronavirus is negative on the stock returns in Pakistan. Limitations This study has found the effect of pandemic on stock returns in Pakistan. Since the effect of pandemic is not negative, the future research can find possible statistical evidences for this reason. This can be done by incorporating other variables such as interest rates, government grants and investor confidence index etc. Recommendations As stock returns are positively impacted by the pandemic, therefore investors should take advantage of the temporary disruptions caused by unforeseen events such as COVID 19. Such events should not be looked in isolation but with government efforts to minimize the adverse impacts, investors should consider investing into stock market.