Covid-19 on stock market performance: evidence from Italy

Abstract

This paper has explored the impact of the Covid-19 pandemic on the Italian stock market at an industry level, analysing companies listed in the two major stock indexes: MIB 30 and STAR. Using daily firm-level stock prices (from December 2019, until October 31, 2020), we employed an event-study approach to analyse short-term stock market reactions, considering different pandemic windows period. Results showed that stocks reacted negatively to the announcement of the first case in the country, with deep reversal effects when the country was locked down. Monetary policy measures showed potential to ease stock markets: the announcement of Next Generation Agreement highlights the reversed role of Market Capitalization. Firm-specific variables were included in order to make inferences about firm characteristics that emerged as value drivers during the pandemic: in the first lockdown period, a greater company’s capitalization ensured a greater resilience to the Covid-19 shock. Reversals at both an industry and a company level are observed. Results allow to understand how an outbreak of contagious disease affects stock returns in various sectors, helping investors to develop trading strategies to protect their wealth from future epidemics and providing inputs into the assessment of economic vulnerability to pandemic crises.

Keywords:

• Covid-19
• pandemic lockdown
• Italian stock market
• overreaction

JEL CLASSIFICATION:

• G40
• G14

Authors’ contributions

All authors were involved in the research design and contributed to writing the manuscript. Marianna Mauro conceived the study and wrote Sections 1 and 3. Monica Giancotti wrote Section 6. Vito Pipitone conducted the analysis and wrote Sections 4 and 5. Riccardo Tiscini wrote Section 2. All authors provided comments to the various drafts and approved the final version.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This research is partly funded by the Universitas Mercatorum of Rome (Italy), Department of Economics