Impact of the novel coronavirus on stock market returns: evidence from GCC countries

Abstract

The novel coronavirus (COVID-19) is not only an unprecedented human and health crisis, but it is expected to become one of the most economically costly pandemics in recent history. Latest financial reports indicate that the COVID-19 outbreak is severely disrupting the global economy and financial markets. Many equity markets around the world have endured heavy declines since the pandemic’s outbreak. To provide an understanding of the effects of the novel coronavirus pandemic on stock markets, we investigate in this paper the impact of the COVID-19 confirmed cases and deaths on the daily returns of the major stock market indices in the Gulf Cooperation Council (GCC) countries over the period from April 1, 2020 to June 26, 2020. Using a panel data regression analysis, we find that stock markets in the GCC countries responded negatively and with a great degree to new and total COVID-19 confirmed deaths, while response to the number of COVID-19 confirmed cases is not significant. Therefore, during the COVID-19 outbreak daily returns of the major stock market indices in the GCC countries declined as the number of confirmed deaths increased. Further analysis suggests that GCC stock markets are impacted positively by the crude oil price (WTI) and negatively by the variation of the implied volatility in the global oil market and the global stock markets.