The impact of COVID-19 pandemic on South Asian Stock Markets

Test of EMH

Abstract

Objective

The paper aims to investigate the pandemic’s impact on the efficiency of capital markets in countries of South Asia. This study includes the stock markets of Pakistan (PSX), India (BSE), Bangladesh (DSE), and Sri Lanka (CSE).

Overview

The study analyzes the market efficiency of these stock markets before and during the COVID‐19 global wave. The core objective of this research is to study the market efficiency of sample stock markets before and during the global pandemic. It has been hypothesized that the stock markets of South Asian countries are weak-form efficient.

Methodology

This research is conducted by using the daily secondary data collected from the stock indices of Pakistan (KSE), India (BSE), Bangladesh (DSE), and Sri Lanka (CSE) from August 2018 to July 2021. For the accomplishment of this research, different statistical tests have been used to check the efficiency of the capital markets. The tests include unit root for stationarity, serial correlation for autocorrelation, and variance ratio methodology for checking efficiency.

Findings

The results find the mixed confirmation of the hypothesis of efficiency. According to the results, we find that all capital markets were efficient before the global outbreak. Similarly, findings indicate that all financial markets exhibit weak efficiency daily during the global breakout of the pandemic (COVID-19). The findings also indicate that the prices of stocks are not independent.

Significance

This conclusion enables investors and market regulators to take action to create certain information in these economies, which in turn allows some stock returns to be predictable and creates chances for arbitrage and abnormal profits.