COVID-19’s impacts on the Korean stock market

ABSTRACT

In this article, we examine the short-term impact of COVID-19 on daily stock market performance in Korea. We find strong evidence of asymmetric effects: although an increase in the number of confirmed cases negatively affected stock returns, returns were unaffected by a decline in the number of cases. We also found that the pandemic’s second wave further decreased stock returns, particularly in the food & beverage sector. Finally, we confirm that a rising number of confirmed cases increases the volatility of the returns. As Korea entered the second and third waves of infection, however, such effects diminished. Policymakers may find our empirical findings useful in their efforts to bolster financial stability, especially when an outbreak of COVID-19 erupts or a COVID-19 style event reoccurs in the future.

KEYWORDS:

• COVID-19
• sectoral stock returns
• volatility
• Korea

JEL CLASSIFICATION:

• C32
• G1
• I10

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ We also examined the potential effects of COVID-19-related deaths but failed to identify a concrete correlation. This is rather surprising. We speculate that investors may have reacted more strongly to news of confirmed cases than deaths as a result of the Korean news media excessively focusing on the former, and the government determining its social distancing levels primarily based on the number of infections. While this study reports the results of our tests only insofar as they involved the number of confirmed cases, our entire dataset and results, which includes information related to COVID-19 deaths, are available upon request.

² Our estimates satisfy the sign and size of the typical parameter restrictions of the GARCH model. GARCH estimation results are available upon request.