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How Covid-19 affected the G7 stock markets

A research paper co-authored by an academic from Queen Mary University of London sheds new light on how the current Covid-19 pandemic has affected the stock markets of G7 countries.

4 June 2020

A stock market screen depicting the impact of Covid-19
A stock market screen depicting the impact of Covid-19

With the uncertainty arising from the Covid-19 pandemic, stock market volatility increased across the G7 countries dramatically according to the paper published on the Social Science Research Network (SSRN).

G7 countries consist of the seven largest IMF-advanced economies in the world and include Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

Strong evidence of a crisis

In addition to stock markets, the research explored the impact of Covid-19 on specific sectors including Consumer Goods, Consumer Services, Financials, Healthcare, Industrials, Materials, Oil & Gas, Technology, Telecommunications and Utilities.

The researchers found strong evidence of a crisis in all countries and all sectors suggesting a universal impact of Covid-19. However, not all business sectors were affected with the same intensity or at the same time.

Oil, Gas and Financials were first to show an impact. Covid-19 volatility represents a demand-driven crisis, with Oil and Gas as primary inputs for Travel. Financials faced the impact of bankruptcies across the real economy.

The Health Care and Consumer services sectors were the most severely affected; a reflection of the Covid-19 drug-race and the dire situation of the airlines, according to the researchers.

Telecommunications and Technology were among those that were hit the latest and least severely, as lock downed people were looking for distraction and entertainment elsewhere. Country-wise the UK and the US were hit the hardest.

Volatility in the stock market

Professor Gulnur Muradoglu, Professor of Finance in Queen Mary’s School of Business and Management said: “The onset of the coronavirus crisis, as a full blown economic crisis, can be dated between 14 and 23 March, when lockdown measures were first discussed in public. Uncertainty in financial markets, measured in daily volatility, jumped approximately between 10 to 100 times.”

Dr Sheeja Sivaprasad, Principal Lecturer in Finance at the University of Westminster said: “In our opinion, this is the first study that examines the effects of the pandemic across key global markets such as that of the G-7. It is relevant as it undertakes sectoral investigation to analyse which sectors were affected first and worst relative to others.”

Professor Marwan Izzeldin, Professor of Financial Econometrics at Lancaster University said: “Volatility increased in the G7 during the Covid-19 period by an average of 22 per cent. Volatility in Health Care is associated with the drive to find an effective vaccine whilst the dire situation facing the world’s airlines is the primary feature for volatility in Consumer Services. Country-wise the UK and the US were hardest hit, where the more uniform impact upon business sectors may reflect the indecisiveness and ambiguity of the political response.”

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