The Impact of COVID-19 on Stock Returns and Firm Characteristics in the Saudi Stock Market

Figures & data

Figure 1. Weekly active confirmed COVID-19 cases (03 March 2020 to 25 May 2021).

Figure 2. Weekly average return of all listed stocks (03 March 2020 to 25 May 20211).

Table 1. List of key studies that examined the implications of COVID-19 on stock markets.

Studies	Methods
Ahmad et al. (2021), Al-Awadhi et al. (2020), Arendt and Mestas (2022), Bash (2020), Chen and Yeh (2021), Guo et al. (2023), Heyden and Heyden (2021), Ichev (2021), Kamal et al. (2022), Khanthavit (2020), Liu et al. (2020), Mazur et al. (2021), Phan and Narayan (2020), Poretti and Heo (2022), Rahman et al. (2021), Saleem et al. (2021), Sayed and Eledum (2021), Tao et al. (2022)	Event study analysis
Ashraf (2020), Atassi and Yusuf (2021), Beirne et al. (2021), Danisman et al. (2021), Demir and Danisman (2021), Dharani et al. (2023), Huynh et al. (2021), Jiang et al. (2022), Latif et al. (2021), Liu et al. (2023), Papadamou et al. (2020), Rabhi (2020), Ullah (2023)	Panel data analysis
Ali et al. (2022), Alzyadat and Asfoura (2021), Phiri et al. (2023), Saleem et al. (2021), Salisu and Shaik (2022), Xu (2021)	Time series analysis

Note. This table lists the key studies that investigated the growth of COVID-19 on the stock markets and their methodology.

Table 2. Subsamples based on firms' characteristics.

Firms' characteristics	Quantile breakpoints for the subsamples
	Below 35th	Between 35th and 65th	Above 65th
Market capitalization	Small stocks	Medium stocks	Large stocks
Book-to-market ratio	Growth stocks	Medium stocks	Value stocks
Profitability	Low-profit stocks	Medium stocks	High-profit stocks
Investment growth	Conservative stocks	Medium stocks	Aggressive stocks

Note. All listed stocks are divided independently into three subsamples for each firm's characteristics.

Table 3. Summary statistics (03 March 2020 to 25 May 2021).

Variables	Obs	Mean	Std. Dev.	Min	Max	p1	p99	Skew.	Kurt.
Returns	11284	0.008	0.059	−0.407	0.495	−0.163	0.183	0.374	9.918
COVID-19	11284	0.1	0.429	−0.623	2.028	−0.623	2.028	2.317	10.534
Brent	11284	0.002	0.129	−0.588	0.413	−0.588	0.413	−1.104	10.916

Note. Returns is the natural log for the weekly return of all listed stocks, COVID-19 is the natural log for the weekly growth of COVID-19 confirmed cases, and Brent is the natural log of weekly growth in Brent oil price.

Table 4. Correlation matrix (03 March 2020 to 25 May 2021).

Variables	Returns	COVID-19	Brent
Returns	1.0000
COVID19	−0.1881	1.0000
Brent	0.2707	−0.1183	1.0000

Note. Returns is the weekly return of all listed stocks, COVID19 is the natural log for weekly growth of COVID19 confirmed cases, and Brent is the natural log of weekly growth in Brent oil price.

Table 5. Overall market reaction to COVID-19 (03 March 2020 to 25 May 2021).

	(1)	(2)
	Main model	Interaction model
α	0.0102***	0.0102***
	(0.0004)	(0.0004)
COVID19	−0.0219***	−0.0167***
	(0.0015)	(0.0014)
Brent	0.1159***	0.0803***
	(0.0040)	(0.0048)
COVID19 and Brent		0.0679***
		(0.0077)
R-square	0.0980	0.1031
F-Statistic	509.18	343.96

Note. This table shows the coefficients of the panel regression results for the stock returns of all listed stocks in the Saudi market. The robust standard errors are in parentheses while the asterisks ^∗,∗∗, and ^∗∗∗ denote statistical significance at the 10%, 5%, and 1% levels, respectively. The dependent variable is R_i,t, the weekly return of stock i at day t. α is the intercept, COVID-19 is the natural log for weekly growth in total confirmed cases of COVID-19, and Brent is the natural log of weekly growth in Brent oil price. Meanwhile COVID-19 and Brent stands for the interaction effect between COVID-19 and Brent.

Table 6. Industry variation of COVID-19’s impact.

Industry sector	α	COVID-19	Brent	Observations	R^2	F
Financials	0.009*** (0.001)	−0.016*** (0.002)	0.13*** (0.007)	2852	0.106	201.25
Materials	0.011*** (0.001)	−0.028*** (0.003)	0.132*** (0.008)	2604	0.146	239.52
Consumer discretionary	0.011*** (0.001)	−0.03*** (0.005)	0.11*** (0.009)	1550	0.099	83.64
Industrials	0.011*** (0.001)	−0.026*** (0.005)	0.127*** (0.011)	1240	0.113	73.71
Consumer staples	0.013*** (0.002)	−0.01** (0.004)	0.083*** (0.011)	930	0.031	32.93
Real estate	0.006*** (0.001)	−.025*** (0.002)	0.091*** (0.009)	682	0.122	118.68
Healthcare	0.009*** (0.001)	−0.022** (0.008)	0.099*** (0.017)	496	0.143	20.40
Communication services and IT	0.013*** (0.003)	−0.012 (0.01)	0.085*** (0.02)	496	0.036	9.13
Energy and utilities	0.008** (0.003)	−0.013*** (0.003)	0.082 (0.046)	434	0.062	12.97
Main model (all listed stocks)	0.010*** (0.0004)	−0.022*** (0.001)	0.116*** (0.004)	11284	0.098	509.18

Note. This table shows the coefficients of the panel regression results for the main model of all listed stocks in the market and each sector independently. The group-robust standard errors are in parentheses, while the asterisks ^∗,∗∗, and ^∗∗∗denote statistical significance at the 10%, 5%, and 1% levels, respectively. The dependent variable is R_i,t, the weekly return of stock i at day t.

Table 7. The impact of COVID-19 and market capitalization (03 March 2020 to 25 May 2021).

	(1)	(2)	(3)	(4)
	All listed stocks	Small stocks	Medium stocks	Large stocks
α	0.0102***	0.0143***	0.0107***	0.0055***
	(0.0004)	(0.0007)	(0.0006)	(0.0005)
COVID-19	−.0219***	−.0186***	−.0294***	−0.0176***
	(0.0015)	(0.0024)	(0.0025)	(0.0025)
Brent	0.1159***	0.1093***	0.1178***	0.1207***
	(0.0040)	(0.0059)	(0.0058)	(0.0087)
Observations	11284	3782	3782	3720
R-square	0.0980	0.0581	0.1317	0.1473
F statistics	509.18	155.61	256.38	130.19

Note. Column 1 represents the coefficients of the panel regression for all listed stocks together, whereas columns 2, 3, and 4 represent the groups of small, medium, and large market capitalization stocks, respectively. The robust standard errors are in parentheses while the asterisks ^∗,∗∗, and ^∗∗∗ denote statistical significance at the 10%, 5%, and 1% levels, respectively. The dependent variable is R_i,t, the weekly return of stock i at day t.

Table 8. Equality test of COVID-19 estimated coefficients for the subsamples—market capitalization.

Groups compared	Chi^2	p value	Decision
Small and medium	9.82***	.0017	Null rejected
Small and large	0.09	.7679	Null not rejected
Medium and large	11.40***	.0007	Null rejected

This table shows the equality test of the coefficients between all market capitalization groups (small, medium, and large). Chi-square, p value, and decisions are shown in the table. We can reject the null if the p value is lower than 5%. The asterisks ^∗,∗∗, and ^∗∗∗ denote statistical significance at the 10%, 5%, and 1% levels, respectively. Stata/IC 16.1 was used to conduct these tests using (suest) and (test) commands.

Table 9. Book-to-market ratio (value vs. growth stocks) and COVID-19 (03 March 2020 to 25 May 2021).

	(1)	(2)	(3)	(4)
	All listed stocks	Growth	Medium	Value
α	0.0102***	0.0093***	0.0099***	0.0114***
	(0.0004)	(0.0009)	(0.0007)	(0.0007)
COVID-19	−0.0219***	−0.0234***	−0.0200***	−0.0223***
	(0.0015)	(0.003)	(0.0025)	(0.0021)
Brent	0.1159***	0.0976***	0.1203***	0.13***
	(0.0040)	(0.0059)	(0.0073)	(0.0068)
Observations	11284	3782	3782	3720
R-square	0.098	0.0801	0.0966	0.122
F statistics	509.18	140.37	185.99	234.29

Note. Column 1 represents the coefficients of the panel regression for all listed stocks, whereas columns 2, 3, and 4 represent the groups of growth, medium, and value stocks, respectively. The robust standard errors are in parentheses while the asterisks ^∗,∗∗, and ^∗∗∗ denote statistical significance at the 10%, 5%, and 1% levels, respectively. The dependent variable is R_i,t, the weekly return of stock i at day t.

Table 10. Firms’ profitability and COVID-19.

	(1)	(2)	(3)	(4)
	All listed stocks	Low	Medium	High
α	0.0102***	0.0135***	0.0093***	0.0078***
	(0.0004)	(0.0007)	(0.0006)	(0.0007)
COVID-19	−0.0219***	−0.0261***	−0.0207***	−0.0187***
	(0.0015)	(0.0023)	(0.0027)	(0.0026)
Brent	0.1159***	0.1171***	0.1237***	0.1067***
	(0.0040)	(0.0059)	(0.007)	(0.0077)
Observations	11284	3782	3782	3720
R-square	0.098	0.0883	0.113	0.0994
F statistics	509.18	208.25	227.90	107.86

Note. Column 1 represents the coefficients of the panel regression for all listed stocks, whereas columns 2, 3, and 4 represent the groups of low, medium, and high profitability stocks, respectively. The robust standard errors are in parentheses while the asterisks ^∗,∗∗, and ^∗∗∗denote statistical significance at the 10%, 5%, and 1% levels, respectively. The dependent variable is R_i,t, the weekly return of stock i at day t.

Table 11. Investment growth and COVID-19.

	(1)	(2)	(3)	(4)
	All listed stocks	Conservative	Medium	Aggressive
α	0.0102***	0.0122***	0.0099***	0.0085***
	(0.0004)	(0.0008)	(0.0007)	(0.0007)
COVID-19	−0.0219***	−0.0226***	−0.0223***	−0.0207***
	(0.0015)	(0.0023)	(0.0029)	(0.0024)
Brent	0.1159***	0.1215***	0.1077***	0.1184***
	(0.0040)	(0.0072)	(0.0059)	(0.0075)
Observations	11284	3782	3782	3720
R-square	0.098	0.0975	0.0965	0.1007
F statistics	509.18	154.14	236.23	137.06

Note. Column 1 represents the coefficients of the panel regression for all listed stocks, whereas columns 2, 3, and 4 represent the groups of conservative, medium, and aggressive investment growth stocks, respectively. The robust standard errors are in parentheses while the asterisks ^∗,∗∗, and ^∗∗∗ denote statistical significance at the 10%, 5%, and 1% levels, respectively. The dependent variable is R_i,t, the weekly return of stock i at day t.

Table 12. Sharia law compliance and COVID-19.

	(1)	(2)	(3)	(4)
	All listed stocks	Islamic	Mixed	Non-Islamic
α	0.0102***	0.0105***	0.0106***	0.0091***
	(0.0004)	(0.0006)	(0.0009)	(0.0008)
COVID-19	−0.0219***	−0.0248***	−0.0219***	−0.0156***
	(0.0015)	(0.0023)	(0.0027)	(0.0023)
Brent	0.1159***	0.1093***	0.1132***	0.1336***
	(0.0040)	(0.0047)	(0.0078)	(0.0098)
Observations	11284	5270	3534	2480
R-square	0.098	0.1006	0.0913	0.1069
F statistics	509.18	293.07	127.54	118.37

Note. Column 1 represents the coefficients of the panel regression for all listed stocks, whereas columns 2, 3, and 4 represent the groups of Islamic, mixed, and non-Islamic stocks, respectively. The stocks are allocated into these groups according to Almaqased Advisory classifications. The robust standard errors are in parentheses while the asterisks ^∗,∗∗, and ^∗∗∗ denote statistical significance at the 10%, 5%, and 1% levels, respectively. The dependent variable is R_i,t, the weekly return of stock i at day t.

Table A1. Equality test of COVID-19 estimated coefficients between groups of firm characteristics.

Groups compared	Chi^2	p value	Decision
Panel A: Subsamples of book-to-market ratio (growth, medium, and value stocks)
Growth and medium	0.78	0.3771	Null not rejected
Growth and value	0.09	0.7614	Null not rejected
Medium and value	0.50	0.4814	Null not rejected
Panel B: Subsamples of profitability (low, medium, and high stocks)
Low and medium	2.44	0.1183	Null not rejected
Low and high	4.60	0.0319**	Null rejected
Medium and high	0.27	0.6036	Null not rejected
Panel C: Subsamples of investment growth (conservative, medium, and aggressive stocks)
Conservative and medium	0.01	0.9410	Null not rejected
Conservative and aggressive	0.32	0.5734	Null not rejected
Medium and aggressive	0.18	0.6741	Null not rejected
Panel D: Subsamples of Islamic compliance (Islamic, mixed, and non-Islamic)
Islamic and mixed	0.67	0.4140	Null not rejected
Islamic and non-Islamic	8.05	0.0046***	Null rejected
Mixed and non-Islamic	3.15	0.0757*	Null rejected

This table shows the equality test of the coefficients between all market capitalization groups (small, medium, and large). Chi-square, p value, and decisions are represented in the table. We can reject the null if the p value is lower than 5%. The asterisks ^∗,∗∗, and ^∗∗∗ denote statistical significance at the 10%, 5%, and 1% levels, respectively. Stata/IC 16.1 was used to conduct these tests using (suest) and (test) commands.

Table B1. Equations for calculating firm characteristics

Firm characteristics	Equation
Market capitalization	= (Stock price i × Common share outstanding i,t)
Book-to-market ratio	= (Total book value i,t / Market capitalization i,t)
Profitability	= (Operating profit i,t / Total book value i,t)
Investment growth	= (Total asset i,t – total asset i,t–1) / total asset i,t–1

This table presents the equations that compute the firm characteristics essential for categorizing stocks into three groups. The price of stock i is the closing price of stock i on the initial day of the study sample. Additionally, the remaining accounting data are derived from the annual report of stock i for the year t, which is 2019.

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