The Impact of COVID-19 on BRICS and MSCI Emerging Markets Efficiency: Evidence from MF-DFA

Abstract

This study examines the response of the BRICS and MSCI emerging stock market indices to the COVID-19 outbreak. For this purpose, this study uses a multifractal detrended fluctuation analysis (MF-DFA) to investigate the market efficiency dynamics of these indices and then ranks them based on their market efficiency. Overall, our results indicate that the returns from all the stock indices exhibit long-range correlations, implying that these markets are not weak-form efficient. Specifically, China showed the highest level of multifractality (i.e., inefficiency), which can be attributed to its highly volatile market structure. Using a subsample analysis, we further explore the impact of COVID-19 on these markets’ efficiency by dividing the dataset into pre- and post-COVID periods. The findings indicate that COVID-19 adversely affected the efficiency of all the indices. Surprisingly, improvement in the Chinese market’s inefficiency was witnessed, which can be attributed to the prompt and effective measures (i.e., timely imposition of health-related measures such as lockdowns and resident quarantines to contain COVID-19 and financial packages designed to curtail the economic meltdown) introduced by the Chinese government. The findings of this study may help investors, policymakers and regulators in refining their financial and policy decisions according to the new efficiency levels of these markets.