Asymmetric effect of COVID-19 pandemic on E7 stock indices: Evidence from quantile-on-quantile regression approach

Various studies have been conducted to examine the effect of COVID-19 on stock prices. However, these studies failed to examine the effect across quantile distributions of both dependent and independent variables. This study pays particular attention to the emerging 7 countries and examines the effect of the novel coronavirus 2019 (COVID-19) pandemic on stock prices. We use quantile unit root and quantile cointegration tests to examine the integrating properties of COVID-19 cases and deaths with stock prices and use quantile-on-quantile regression (QQR) to examine the relationship across quantile distributions of both dependent and independent variables. Quantile cointegration estimates indicate that stock prices are integrated with COVID-19 cases whereas QQR estimates indicate a weak positive relationship at the upper quantiles of stock prices, and a strong negative effect is found at the lower quantiles of stock prices. Policy implications are recommended based on the findings of this study.

Automated summary

This study focuses on the impact of COVID-19 on stock prices in emerging countries, using quantile statistical methods to analyze the relationship. It found that stock prices are integrated with COVID-19 cases and exhibit different relationships at upper and lower quantiles, with weak positive impact at higher quantiles and strong negative impact at lower quantiles. Policy recommendations are made based on these findings.