Industry-level stock returns response to COVID-19 news

Abstract

The COVID-19 pandemic has impacted the stock markets of many countries. Understanding the impact of this pandemic on industries is an important and relevant basis for a thorough explanation of stock market movements during this period. The aim of this study is to examine how stock returns of non-financial sectors in Vietnam’s stock market react to information about the COVID-19 pandemic. The event study method is applied to analyze three main events related to the emergence and outbreak of this pandemic in Vietnam in 2020. The first event (January 23, 2020) and the second event (March 6, 2020), respectively, were the time when Vietnam officially announced that it had recorded the first case positive for COVID-19 in the Hochiminh city and Hanoi. The third event is on March 30, 2020, Vietnam announced that it will apply a blockade order in all provinces and cities nationwide to limit the outbreak of this pandemic. Closing price data from January 1, 2019 to April 14, 2020 for five industry indexes (Basic Materials, Consumer Goods, Consumer Services, Industry and Utilities), used in this study. The results show that the stock prices of all five sectors reacted in the same meaningful direction (negative/positive) after the event that Vietnam confirmed the first patient confirmed with COVID-19 in Hochiminh city and the nationwide blockade event was announced, proving that the stock market is affected by psychology. In industries, Industry and Consumer Services are the two sectors that respond the most to events, but Basic materials are the least affected. The study found that the Consumer Goods industry had the most positive results in the five industries for the following two events; The Utilities industry reacted negatively to the first information that could create potential risks of a COVID-19 outbreak in the community, especially in the two major economic centers of Vietnam. Conclusions from this study show that Vietnam’s stock market is inefficient, research results and insights on industry responses to disease information contribute to strategic planning for policymakers and investors in the future.