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Stock Market Returns and COVID-19 Outbreak: Evidence from the UK

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 Stock Market Returns, liquidity and COVID-19 Outbreak: Evidence from the UK
Yasean Tahat
College of Business Administration, Gulf University for Science and Technology, Kuwait
Ahmed Hassan Ahmed
School of Business, University of Dundee, Dundee, United Kingdom

Abstract:

Recently in the Finance Research Letters, Goodell (2020) argues that “the COVID-19 pandemic
is causing a direct global destructive economic impact that is present in every area of the globe”.
Indeed, the effect of this pandemic on capital markets is quite evident where markets are recently
at chaos without an outright direction. This study responds to several calls to uncover the impact
of COVID-19 outbreak on firms’ stock market returns and liquidity. The current study aims to
contribute to an improved understanding of the disastrous repercussions of this pandemic. The
study documents empirical evidence that finds a statistically negative relationship between stock
market returns and the outbreak of COVID-19. Further, the study finds that sectoral market returns
have been severely affected by the outbreak of COVID-19; the only exception of this
generalization relates to the healthcare and basic materials sectors whereas their market returns
has positively reacted. In addition, we find that market liquidity has been shrunk during the
outbreak of COVID-19. Interestingly, we find, to some extent, a significantly positive association
between market returns and liquidity suggesting that investors either exit or hang-on. The findings
of this research provides policy implications to investors and policy makers indicating that
pandemics can significantly perpetrate business economics.
Keywords: Market Returns, Volatility, Liquidity, Covid-19, UK, FTSE 100

Current Version: 5 June 2020

1
1. Introduction

On December 31st, Wuhan Municipal Health Commission in China reported several pneumonia

cases which eventually identified as a novel coronavirus. Further, due to severely increasing

reported cases around the globe, the World Health Organisation (WHO) 1 declared Covid-19 as a

global pandemic on March 11th 2020. As of May 30th 2020, there have been approximately six

million confirmed COVID-19 cases and over 365,000 deaths, with Europe and the Americas

counted for 81% of the confirmed cases. In the UK, COVID-19 related cases climbed to about

270,000 cases and 38,000 deaths 2. Indeed, this pandemic presents a serious challenge to the

economic development worldwide and it is expected to blanket the globe (Goddell, 2020). In terms

of economics, the pandemic has injected an unprecedented amount of uncertainty into financial

markets worldwide and argued that world trade in goods and services could fall by 10%-15% in

2020 as compared to 10% drop around 2008 crisis (Slater, 2020). In fact, all capital markets have

experienced a free fall, with Dow Jones Industrial Average (DJIA) and S&P500 indices dropping

by 33% and 29%, respectively in the period between December 31st 2019 and March 20th 2020

(World Economic Forum, 2020). In the UK, FTSE100 suffered the worst quarter since 1987,

recording a drop of 24.80% (The Guardian, 2020). In a response to the emerging COVID-19

outbreak, governments and central banks have decisively intervened to mitigate the economic

uncertainty brought by COVID-19 and have introduced several stimulus packages. For instance,

the US has issued US$484 billion Paycheck Protection Program, the Health Care Enhancement

Act which committed US$2.3 trillion (around 11% of GDP) as a Coronavirus Aid, the Relief and

Economy Security Act costing US$8.3 billion, the Coronavirus Preparedness and Response

1
Coronaviruses (CoV) are a large family of viruses that cause illness ranging from the common cold to more severe
diseases. A novel coronavirus (CoV) is a new strain that has not been previously identified in humans (WHO, 2020).
2
At the time of writing up this paper (as of May 30th) the Covid-19 pandemic is ongoing, with the ultimate scale and
repercussions of this catastrophe is still unknown.

2
Supplemental Appropriations Act for US$192 billion, and adopted an unprecedented decision by

the Federal Reserve to lower interest rate to zero% (IMF, 2020) 3. In the UK, the Bank of England

in conjuncture with Covid Corporate Financing Facility introduced £330 billion of loan program

to support businesses (15% of GDP) and reduced the interest rate by 65 basis sliding into 0.1

percent (IMF, 2020).

The current paper aims to extend the literature to examine the effects of COVID-19 outbreak on

capital markets. To the best of our knowledge, empirical research about the effect of Covid-19

outbreak stock market returns and liquidity is very limited, hence, the current study fills this

literature void by examining the impact of Covid-19 outbreak on stock market returns and liquidity

of the UK FTSE 100. In addition, the current study provides important policy implications to

market participants in understanding the behaviours of stock market in a time of pandemics

outbreak. More specifically, the results of the current study should assist policy makers in

developing appropriate financial policy responses to COVID-19.

The remainder of this paper is organised as follows: Section 2 discusses the literature review, while

Section 3 outlines the research design. Section 4 reports the results. Finally, Section 7 concludes

the paper.

2. Literature Review

3
Compared to $750 billion package during the global financial crisis (Goodell, 2020).

3
Over the past decades, the extant literature has investigated the economic impacts of epidemics

and pandemics (Haacker, 2004; Santaeul, 2008; Yach et al., 2006; Bloom et al., 2018). For

example, Haacker (2004) investigated the impact of HIV/AIDS on the government finance and

public services, while Santaeul (2008) examined the influence of AIDS on economic development.

Yach et al. (2006) focused on the economic consequences of global epidemics of obesity and

diabetes. Forecasting the repercussions of potential pandemics, Bloom et al. (2018) highlighted

the disastrous impact of pandemics on the health and economic systems worldwide 4. However, the

economic consequences of pandemics on financial markets has relatively overlooked which may

lead to imperfect conclusions from other forms of natural disasters. Indeed, Goodell (2020) stated

that “markets react to natural disaster such as earthquakes and volcanos; as well as air disasters;

and more recently acts of terrorism”. Examples include, air crashes disasters (Bosch et al., 1998),

terrorist attacks (Hon et al., 2004; Choudhdry, 2005; Karolyi, 2006; Brounen and Derwall, 2010),

mining disasters (Kowalewski and Śpiewanowski, 2020), pandemic diseases, including Severe

Acute Respiratory Syndrome (SARS 5) (Chen et al., 2007) and Ebola (Ichev and Marinč, 2018).

In addition, the academic community has reacted to COVID-19 crisis by examining the impact of

Covid-19 on financial markets. Specifically, Zhang et al. (2020) investigated the impact of the

COVID-19 pandemic on stock market risk. They reported that risk level of global financial markets

has substantially increased as a result of this pandemic. Further, the findings revealed that the

pandemic-related uncertainty and its associated economic damage has caused markets to become

highly volatile. Similarly, McKibbin and Fernando (2020) explores seven different scenarios of

4
Similar warnings were issued by the Global Preparedness Monitoring Board of the World Health Organisation,
asserting that little or no preparation is being undertaken worldwide (Global Preparedness Monitoring Board, 2019).
5
SARS was estimated to cost the world between 30-100 billion US$ (Smith, 2006).

4
how COVID-19 might evolve in the coming year. In general, suggested scenarios demonstrate that

even if it is resolved, the outbreak could significantly affect the global economy in the short run.

In the same vein, Al-Awdahi et al. (2020) examine the effect of the COVID-19 contagious

infectious disease on the Chinese capital market. The results suggest that the daily growth in total

confirmed cases and deaths caused by COVID-19 have a significantly negative effects on stock

market returns across all companies. In addition, Akhtaruzzaman et al. (2020) examine how

financial contagion occurs cross financial and nonfinancial firms between China and G7 countries

during the COVID–19 outbreak. Their findings show that listed firms across these countries,

financial and non-financial firms alike, experience significant increases in dynamic conditional

correlations between their stock returns.

Hence, the first hypothesis is developed as follows:

H1: Stock returns is negatively associated with the outbreak of COVID-19.

The extant literature has suggested that market liquidity can explain stock market returns

(Demsetz, 1968; Roll, 1984; Amihud and Mendelson, 1986; 1991; Amihud, 2002; Pastor and

Stambaugh, 2003; Acharya and Pedersen, 2005; Amihud et al., 2015; Leirvik et al., 2017). For

instance, the impact of trading cost on stock returns has been largely examined and outlined a

direct connection between stock returns and the cost of equity capital (Amihud and Mendelson,

1986; Brennan and Subrahmanyam, 1996; Jacoby et al., 2000). The findings revealed that market

liquidity, transaction cost and marketability affect investors’ choices. Indeed, Amihud and

Mendelson (1989) pointed out that US stock risk-adjusted returns decreased with regard to market

liquidity as measured by the bid-ask spread. Further, Brennan et al. (1998) reported a significantly

5
negative relationship between expected stock returns and market liquidity. By contrast, Amihud et

al. (1997) revealed a positive association between market liquidity and market returns suggesting

that liquidity improvement is associated with perpetual price appreciation. Using the turnover ratio

as a measure of liquidity, Datar et al. (1998) provided empirical evidence with a negative

association between market liquidity and returns. Similarly, other researchers viewed that market

liquidity is one of the most important factors to explain stock returns across capital markets

(Aparicio and Estrada, 2001). Another strand of literature argues that market liquidity is positively

related to growth, capital accumulation, productivity enhancements which can lead into an overall

economic growth (Levine and Zervos, 1998; Bekaet and Harvey, 2000).

The current study revisits the relationship between market liquidity and returns over the period of

COVID-19 outbreak. Indeed, the outbreak of COVID-19 raised investors’ concerns with respect

to market liquidity. Previous research has indicated a severe shortage of market liquidity during

financial markets uncertainty (Pastor and Stambaugh, 2003; Chordia et al., 2005). Hence, the

current study seeks to understand the market liquidity behaviour during the outbreak of COVID-

19 and how it affect stock market returns. Hence, the second hypothesis is developed:

H2: Market liquidity is positively associated with stock market returns during the outbreak of

COVID-19.

6
3. Research Design

The current study examines the effect of COVID-19 outbreak on the stock returns and liquidity

for firms listed in FTSE 100 during the pandemic spread in the UK. The period of the current study

falls between December 31st 2019 and May 19th 2020. A panel data regression is used to reduce

estimation bias and multicollinearity, control for heterogeneity and identify the time-varying

association between dependent and independent variables (Baltagi, 2008; Hsiao, 2014). The study

designs two measures for COVID-19 outbreak, namely: (i) the daily growth of cases tested positive

for COVID-19; and (ii) the daily reported death cases related to COVID-19 infection. COVID-19

related data was hand-collected from the World Health Organization website for the period of

between December 31st 2019 and May 19th 2020. Financial information of FTSE 100 was collected

from DataStream.

First, we develop three regression models to examine the effect of COVID-19 outbreak on daily

market returns as follows:

𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 = 𝛼𝛼0 + 𝛼𝛼1 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 + 𝛼𝛼2 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡−1 + 𝛼𝛼3 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 + 𝜖𝜖𝑖𝑖,𝑡𝑡 [𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 1]

𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 = 𝛼𝛼0 + 𝛼𝛼1 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 + 𝛼𝛼2 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡−1 + 𝛼𝛼3 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 + 𝜖𝜖𝑖𝑖,𝑡𝑡 [𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 2]

𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 = 𝛼𝛼0 + 𝛼𝛼1 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 + 𝛼𝛼2 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡−1+ 𝛼𝛼3 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 + 𝛼𝛼4 𝐺𝐺𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡−1 + 𝛼𝛼3 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 + 𝜖𝜖𝑖𝑖,𝑡𝑡 [𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 3]

Where 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 is the daily market returns measured as the firm i closing price at day t less the

closing price at day t-1 divided by the closing price at day t-1, 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 represents the daily new

COVID-19 cases confirmed, 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡−1 refers to growth in daily new COVID-19 cases confirmed,

𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 is the Daily COVID-19 related death cases, 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡−1 refers to the growth in Daily

7
COVID-19 related death cases and 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 is the market to book value ratio measured as the

common equity divided by the market capitalization.

In order to examine the effect of market liquidity on market returns, the current study develops

further three regression models as three measures are used for market liquidity including the

trading turnover ratio (TVR), bid-ask spread (BAS) and high-low inter-day price (HLP).

𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 = 𝛼𝛼0 + 𝛼𝛼1 𝑇𝑇𝑇𝑇𝑇𝑇𝑖𝑖,𝑡𝑡 + 𝛼𝛼2 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖,𝑡𝑡−1+ 𝛼𝛼3 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 + 𝛼𝛼4 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑖𝑖,𝑡𝑡 + 𝜖𝜖𝑖𝑖,𝑡𝑡 [𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 4]

𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 = 𝛼𝛼0 + 𝛼𝛼1 𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖,𝑡𝑡 + 𝛼𝛼2 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖,𝑡𝑡−1+ 𝛼𝛼3 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 + 𝛼𝛼4 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑖𝑖,𝑡𝑡 + 𝜖𝜖𝑖𝑖,𝑡𝑡 [𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 5]

𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 = 𝛼𝛼0 + 𝛼𝛼1 𝐻𝐻𝐻𝐻𝐻𝐻𝑖𝑖,𝑡𝑡 + 𝛼𝛼2 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖,𝑡𝑡−1+ 𝛼𝛼3 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 + 𝛼𝛼4 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑖𝑖,𝑡𝑡 + 𝜖𝜖𝑖𝑖,𝑡𝑡 [𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 6]

Where TVR is computed as the number of shares traded at day t divides by the number of shares

outstanding at day t, BAS refers to capital market spread measured as ask price less bid price

divides by the Mean of ask price, and HLP refers to highest-lowest price during the day measured

as the highest price during day t less lowest price during day t divides by the highest price at day

t.

4. Results
4.1 Descriptive Statistics
This section outlines the descriptive analysis for the main variables tested in the current paper.

First, a graph analysis is provided to show the cumulative average of daily COVID-19 related cases

(NDC) and deaths (DDC) along with daily market returns (DMR). A visual analysis of Figure 1

illustrates that COVID-19 confirmed cases in the UK started early March and spikes overtime

arriving its peak in the second half of April before the curve starting to reverse over the month of

May. Further, Figure 1 shows that COVID-19 related death cases behaved similarly where death

8
cases reached the highest record in the mid of April. Indeed, Figure 1 suggests that NDC and DDC

are positively related where both consistently arose over the period of the current study. Figure 2

explains the DMR which shows that DMR was almost stable between December and February,

while it became very volatile with negative returns over March and April where COVID-19 is

worsened. A comparison between Figures 1 and 2 reveal that the outbreak of COVID-19 in the

UK has negatively affected stock returns. In particular, while COVID-19 related cases drastically

climbs, stock returns aggressively slides over the period of the study.

Insert Figures 1 & 2 here

Table 1 provides a summary statistics for the data examined in the current paper. An analysis of

Table 1 reveals that DNC reports a mean of 1781 with a maximum value of 8681 cases.

Consistently, the daily growth of new cases (GDNC) shows a mean of 0.12 with a maximum

growth 0.67. In addition, Table 1 shows that DDC reports a mean of 292 with a maximum value

of 1190 death cases. Further, the table illustrates that daily growth of death cases (GDDC)

increased by a mean of 0.135. A further inspection of Table 1 points out that DMR reports a mean

of -0.0008 with a maximum value of -0.34 suggesting that DMR has been negatively affected by

the outbreak of COVID-19. Further, Table 1 outlines statistical information about market liquidity

measures including the market spread (BAS), high-low price (HLP) and trading turnover ratio

(TTV) which indicate that market liquidity has shrunk over the period of the current study. Finally,

Table 1 outlines a summary information for a set of control variables including MTBV and LGMV.

Table 2 reports the outcomes of the correlation matrix. An analysis of Table 2 indicates that daily

DMR is negatively correlated with COVID-19 outbreak related variables indicating that the spread

of COVID-19 has been critical for capital markets.

Insert Table 1 & 2 here

9
4.2. The Effect of COVID-19 outbreak on Daily Market Returns

To reiterate the results arrived at above, the current study regresses daily stock returns (DMR) on

COVID-19 related variables including DNC, GDNC, DDC and GDDC. COVID-19. An analysis

of Table 3 shows that the influence of COVID-19 is quite evident. In particular, Panel A of Table

3 indicates that both NCS and CNCS have had a statistically negative relationship with DMR with

coefficients of -2.2 and -0.8 and p-values of less than 1%, respectively. Further, Panel B of Table

3 illustrates a significantly negative association between both DDC and GDCC with DMR whereas

they report coefficients of -0.021 and -0.025 and p-values of less than 1%, respectively. Finally,

Panel C of Table 3 reiterates the negative relationships reported in Panels A and B. These result

are consistent with the extant literature that indicates market returns react adversely to any

political, economic or/and natural crises (Lee & McKibbin, 2004; Elnahas et al., 2018; Huang et

al., 2018, Al-Awadhi et al., 2020; Goodell , 2020).

In order to provide a more insightful analysis of COVID-19 effect on DMR, we provides provide

industrial analysis to see whether DMR behaved differently cross-sectors during the period of

COVID-19 outbreak. An analysis of Figure 3 indicates that COVID-19 has had severe negative

effect on all sectors. The only exception of this generalization relates to the healthcare and basic

material industries whereas they generated a positive DMR during COVID-19 outbreak indicating

the high demand on medical supplies and related materials to cope with this pandemic.

Insert Table 3 & Figure 4 here

4.3. The impact of Market Liquidity on Stock Returns during the Outbreak of COVID-19

This section starts by exploring the trend and behaviour of market liquidity measures used in the

current study. An inspection of Figure 4 indicates that FTSE 100 Exchange was illiquid during the

10
period of the current study indicating investors’ reluctant to buy equity securities. In particular,

Figure 4 indicates trading turnover ratio (TVR) moved narrowly between 1% and 2%, while

market spread (BAS) stayed near zero. Further, Figure 4 outlines that high-low price measure of

liquidity ranged between 3% and 5%. In general, Figure 4 reflects investors’ sentiment of

uncertainty around the outbreak of COVID-19; indeed, some investors were hesitant to buy, while

others were trying to exit suggesting that capital markets suffered an illiquidity problem.

In order to get an insightful analysis of market reaction to COVID-19 outbreak, we examine the

uncertainty of market liquidity on daily stock returns. Figure 5 shows, to some extent, consistent

reaction between market liquidity and returns. In particular, Figure 5 illustrates that all market

liquidity measures were moving up and down in the same direction representing the bad news of

COVID-19 outbreak at one point of time and the good news of government economic stimulus

plans and the initiatives of medicine development at another point of time. Table 4 regresses all

liquidity measures on daily market returns. An analysis of Table 5 indicates a statistically positive

relationship between market liquidity measures and market returns. In particular, trading turnover

ratio had the strongest relationship with market returns with a coefficient of 4.87 and a p-value of

0.01. This followed by market spread (BAS) and high-low (HLP) measures of liquidity with

coefficients of 2.8 and 1.2 and p-values of less than 10%, respectively. The explanatory power of

model ranged between 4% and 7% of market returns.

Insert Figures 4 & 5 and Table 4

5. Conclusion

The current paper provides a simple but novel statistical analysis about the relationship between

daily market returns, COVID-19 outbreak and market liquidity for firms listed in the FTSE 100.

11
The rapid spread of this global pandemic has had incalculable impact on the global community,

causing both catastrophic economic and human toll. In particular, capital markets have

experienced a drastically negative reaction on a significant proportion of the economy scale. In

general, the current study finds that COVID-19 spread has had statistically negative influence on

daily market returns and liquidity indicating the severity of COVID-19 outbreak on capital market

transactions. In addition, the findings indicates that most industries experienced a great level of

uncertainty. Further, the findings suggest that market liquidity has shrunk which ultimately had an

adverse effect on market returns. The current study contributes to the extant literature by providing

empirical evidence on the impact of Covid-19 outbreak on stock market returns and liquidity of

the UK FTSE 100. In addition, the reported findings provide important policy implications to

market participants in understanding the behaviour of stock market returns in a time of pandemic.

The results of this study is based on data covering the period between December 31st 2019 and

April 21st 2020, which represents a snapshot during a time of rapid change, this can be considered

a limitation but simultaneously provides opportunities for future research.

12
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 -0.15
-0.05
0.05
0.15
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
31-Dec-19
7-Jan-20 31-Dec-19
10-Jan-20
14-Jan-20
22-Jan-20
21-Jan-20
3-Feb-20
28-Jan-20
13-Feb-20
4-Feb-20
25-Feb-20
11-Feb-20
6-Mar-20
18-Feb-20
18-Mar-20
25-Feb-20
30-Mar-20
3-Mar-20
9-Apr-20

Figure 2: Daily market returns

10-Mar-20
21-Apr-20
17-Mar-20
4-May-20
24-Mar-20
14-May-20
31-Mar-20
7-Apr-20
14-Apr-20

16
21-Apr-20
28-Apr-20
Average of CNCS

5-May-20
12-May-20
19-May-20
Figure 1: Daily COVID-19 New Cases and Death Cases Confirmed

Average of CDCS

Total
Average of CNCS
 Figure 3: DMR by Industry
Total
15%

10%

5%

0% Total

-5%

-10%

-15%

Figure 4: Stock Market Liquidity overt the period of the current study
0.05

0.03

0.01 Average of Turnover

Average of HL
8-Jan
16-Jan
24-Jan
3-Feb
11-Feb
19-Feb
27-Feb

1-Apr
9-Apr
17-Apr
27-Apr
6-Mar
16-Mar
24-Mar

5-May
13-May
31-Dec

-0.01 Average of Spread

-0.03

-0.05

17
 Figure 5: Stock Market Liquidity and Return during the outbreak of COVID-19
0.2

0.15

0.1
Average of Turnover
0.05
Average of HL
Average of DMR
0
Average of Spread
6-Jan
10-Jan
16-Jan
22-Jan
28-Jan
3-Feb
7-Feb
13-Feb
19-Feb
25-Feb

3-Apr
9-Apr
15-Apr
21-Apr
27-Apr
2-Mar
6-Mar
12-Mar
18-Mar
24-Mar
30-Mar

1-May
7-May
13-May
19-May
31-Dec

-0.05

-0.1

-0.15

Table 1: Descriptive Analysis

Variables Mean Std. Dev. Min Max
DNC 1781 7860 0 8681
GDNC 0.12 0.14 0 0.67
DDC 292 570 0 1190
GDDC 0.135 0.12 0 0.46
DMR -0.0008 0.038 -0.34 0.28
MTBV 5.6 15 -8.6 148
LGMV 9.2 0.89 6.8 11.6
BAS 0.007 0.008 0 0.009
HL 0.043 0.045 0.0045 0.4
Trading value (Million) 12.8 30.4 10.7 424.5
Turnover ratio 7.8 1.46 3.9 13.4
Note: this table provides a summary statistics for variables examined in the current study. Where 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 is the daily
market returns, 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 represents the daily new COVID-19 cases confirmed, 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡−1 refers to growth in daily new
COVID-19 cases confirmed, 𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖,𝑡𝑡 is the Daily COVID-19 related death cases, 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝑖𝑖,𝑡𝑡−1 refers to the growth in
Daily COVID-19 related death cases and 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 is the market to book value ratio, BAS refers to capital market
spread measured as Ask Price less Bid Price divides by the Mean of Ask Price, Trading value refers to value of shares
traded at day t, and Turnover ratio is computed as the number of shares traded at day t divides by the number of shares
outstanding at day t.

18
 Table 2: Correlation Matrix
Variables NCS NDCS DMR MTBV LGMV BAS HL TV
DCS 1.0
DDC 0.65*** 1.0
DMR 0.03** 0.10** 1.0
MTBV -0.3** -0.018 0.004 1.0
LGMV -0.11** -0.07** 0.02* -0.07** 1.0
BAS -0.017 -0.015 -0.018 0.013 -0.04** 1.0
HLP -0.018 0.012 -0.02 0.04** -0.008 0.17** 1.0
TVR 0.008 0.006 0.01** -0.07** 0.09** -0.08** 0.29*** 1.0
Note: this table outlines the results of correlation test between variable tested in this paper.

Table 3: The Effect of COVID-19 Outbreak on the Daily Stock Returns

Variable Panel A: DMR (M1) Panel B: DMR (M2) Panel C: DMR (M3)
Intercept -10.1*** (-4.55) -21.1*** (-4.9) -15.6 ***(-3.19)
DNC -2.2*** (-2.8) -1.82 (-1.2)
GNDC -0.08*** (-5.4) -0.025*** (-6.7)
DDC -0.021*** (-2.9) -4.9 (-0.55)
GDDC -0.025***(-3.46) -0.032** (-4.4)
MTBV 0.022** (2.5) 0.027** (2.2) 0.028** (2.1)
Fixed time effect Yes Yes Yes
Observation 7235 7091 6504
F-statistics 12.6*** 10.6*** 15.8***
Note: this table illustrates the regression results of Model 1 (M1), Model 2 (M2) and Model (M3).

Table 4: The effect market liquidity on Stock Market returns over the COVID-19 Outbreak

Variable Panel A: DMR (M4) Panel B: DMR (M5) Panel C: DMR (M6)
Intercept -171.1*** (-11.9) -176.4*** (-12.2) -177.4*** (-12.25)
TVR -4.87*** (8.4)
BAS 21.8* (-2.3)
HLP 1.12* (1.5)
MTBV -0.025 (1.28) -0.01 (-1.5) -0.02 (-1.55)
LGMV 0.25*** (7.4) 0.17*** (5.7) 0.175*** (5.75)
Fixed time effect Yes Yes Yes
F-statistics 61.9*** 43.5*** 44.5
Adj-R2 0.07 0.05 0.045
Observations 3376 3376 3376
Note: this table illustrates the regression results of Model 4 (M4), Model 5 (M5) and Model 6 (M6).

19

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