The Effect of the COVID-19 Pandemic on International Stock Exchanges

Introduction

It is possible to define the concept of risk in various ways. Risk is the deviation possibility of the realized value from the expected value. It has two components, nonsystematic risk and systematic risk. While this risk can be decreased, it cannot be completely eliminated. All markets are affected by the systematic risk factors. Despite this, pandemics are defined as unpredictable risk factors that do not take place in existent risk groups, that occur over wide areas, that involve multiple countries and continents, and that affect individuals and the majority of the society.

If a pandemic occurs only in a specific region, its economic impact will not be so great. However, it deeply affects the economies and financial markets in every situation. This impact occurs as the costs and profits of companies, the consumption and saving habits of individuals, the monetary and fiscal policies of governments, the labor force markets, and the money and capital markets are affected. Recession is experienced in general economic balance. If a pandemic occurs in a slumped economy due to recession, it increases the impact of the recession. It increases the worries of decision makers regarding the rehabilitation of the economy.

Humankind has struggled with many pandemics with a global dimension in history, and humans have overcome them by using their collective knowledge and intelligence against these pandemics. Today, collective knowledge and intelligence are needed in the struggle against the pandemic. Three important pandemics have been experienced all over the world in the recent past, severe acute respiratory syndrome (SARS), avian influenza (bird flu), and coronavirus (COVID- 19).

SARS, the first of the above-mentioned pandemics, emerged in the state of Guangdong in southern China in November 2002. The World Health Organization (WHO) published a global warning about SARS on March 12th and suggested a delay of all travel to the regions where SARS was observed. The first impact of the pandemic was experienced in the trade and tourism sectors. It then had a negative impact on Asia and the global equity share markets. Sharp decreases were seen in the equity share prices. However, while SARS negatively affected the economy for short term, it did not have any significant impact on domestic and foreign investment.

Bird flu, the second above-mentioned pandemic, emerged in Vietnam in December 2003. The first impact of the pandemic was experienced in international trade, and its second impact was experienced in the labor force market in the issue of labor force efficiency and quality. However, although the bird flu was a highly infectious disease, it did not have a high fatality rate and thus had a limited impact on the economy. As in SARS, the bird flu pandemic negatively affected the economy for only a short term.

COVID-19, the third pandemic mentioned above, emerged for the first time in the city of Wuhan in China on December 31st, 2019. It expanded rapidly all over the world and deeply and negatively affected the economic system on a global scale. WHO classified the COVID-19 epidemic as a global emergency on January 30th, 2020. Governments have taken strict precautions to decrease the fatal impact of the pandemic including border closures, travel restrictions, social distance, and quarantine which have caused a decrease in the need for goods and service in all economic sectors. A decrease has been seen in both labor force demand and labor force supply in the labor force markets. Countries have faced an intensive unemployment problem. Conversely, increasing demands have been observed in medical materials and food sectors. The global economic crisis triggered by COVID-19 today is very different from the pandemics of the past because COVID-19 is an epidemic that caused the sudden stoppage of global economic activities because it is spread from person to person via droplets. It is clear that this pandemic will not go away in a short period of time. COVID-19 pandemic has affected the international equity share markets. The detection of this impact is important governments play an important role in selecting the monetary and fiscal policies to be applied during the rehabilitation process of the economies. The impact of COVID-19 on 39 international stock exchange indexes was examined in this study, and findings are shared below.