The impact of the COVID-19 pandemic on the equity market risk measured by the beta coefficient

Abstract

The beta coefficient () is one of the most popular measures of the risk associated with investing in stocks. In the case of the simple linear regression model, the coefficient shows what change in the rate of return on a companys shares will occur when the market rate of return on shares increases by one percentage point. The aim of the study presented in the article is to compare the value of the coefficient of the shares in the largest companies listed on the Warsaw Stock Exchange (WSE) during the COVID-19 pandemic (20202021) and in the period directly preceding its outbreak (20182019). The considered hypothesis is that the spread of the COVID-19 pandemic had an impact on the value of the coefficient of the shares of selected companies listed on the WSE. In order to verify the hypothesis, the ordinary least squares (OLS) method was used to estimate the coefficient of WSE companies for the indicated research periods. Four different time intervals of returns were used to estimate the coefficient: daily, weekly, biweekly and monthly. The differences between the values of the shares of the issuers qualified for the study proved statistically significant (when verified with the t-test for dependent groups) for all of the indicated time intervals of returns. The research results show a significant change in the value of the coefficient of the shares of the largest WSE issuers during the COVID-19 pandemic in comparison to the previous years, which indicates a higher level of systematic risk for these companies, previously considered as safe. These results are consistent with the research conducted on global capital markets.