The Short-Term Effects of COVID-19 on China’s Stock Market

We investigate the impact of COVID-19 on 36 sectors of China’s stock market as classified by Thomson Reuters Eikon. By applying the event study methodology, we examine short-term changes of up to 10 days in stock prices and returns following events pertaining to COVID-19 for the period between 31 December 2019 and 10 March 2020. The evidence captures the gloomy effect of the virus on the Chinese market. We find statistically significant negative abnormal returns following many events across sectors whereby the most significant effect is widely observed on 4 February 2020. The results are supported by various robustness tests including those of Corrado (1989) and Chesney et al. (2011), as well as allowing for market integration. In addition, we document changes in systematic risk by using various ARCH models such as GARCH (1,1), TARCH, PARCH and EGARCH. We find several spikes—instant changes in systematic risk— in the travel and leisure sector while pharmaceuticals and biotechnology and healthcare equipment and services sectors seem to benefit from the pandemic.