AN ANALYTICAL STUDY ON THE EARLY IMPACT OF COVID-19 ON GLOBAL STOCK INDICES – A COMPARATIVE APPROACH OF INDIAV/S SPAIN, FRANCE, UK, USA, GERMANY AND ITALY

The spread of the corona virus disease COVID-19 has severely impacted the global financial markets. These are incredibly uncertain times, with countries around the world suffering the destabilizing effects of the pandemic. This research paper evaluates the early impact of the coronavirus outbreak on nine leading stock market indices in majorly affected countries including India, Spain, France, the USA, Germany, Italy, and the UK. The consequences of infectious disease are considerable and have been directly affecting stock markets worldwide. The scope of this paperis confined to the analysis of nine global indices including NASDAQ, Dow Jones, FTSE 100, IBEX 35, FTSEMIB, CAC 40, BSE, NSE and DAX 30 composite. The COVID-19 impact has beenanalysed on the above-mentioned indices for the period of 30 st Jan 2020 (announced as a pandemic by WHO) to 30 th April 2020. i.e. a period of 90 days (63 trading days) are considered for a paired sample t-test. Using an event study methodology, the results indicate that the indices of these majorly affected countries fell sharply after the virus outbreak. Countries in Asia experienced higher negative abnormal returns as compared to other countries. Further, Regression results also support the adverse effect of COVID-19 confirmed cases on stock indices, abnormal returns through an effective channel by adding up investors‘ pessimistic sentiment on future returns and fears of uncertainties.

The spread of the corona virus disease COVID-19 has severely impacted the global financial markets. These are incredibly uncertain times, with countries around the world suffering the destabilizing effects of the pandemic. This research paper evaluates the early impact of the coronavirus outbreak on nine leading stock market indices in majorly affected countries including India, Spain, France, the USA, Germany, Italy, and the UK. The consequences of infectious disease are considerable and have been directly affecting stock markets worldwide. The scope of this paperis confined to the analysis of nine global indices including NASDAQ, Dow Jones, FTSE 100, IBEX 35, FTSEMIB, CAC 40, BSE, NSE and DAX 30 composite. The COVID-19 impact has beenanalysed on the above-mentioned indices for the period of 30 st Jan 2020 (announced as a pandemic by WHO) to 30 th April 2020. i.e. a period of 90 days (63 trading days) are considered for a paired sample t-test. Using an event study methodology, the results indicate that the indices of these majorly affected countries fell sharply after the virus outbreak. Countries in Asia experienced higher negative abnormal returns as compared to other countries. Further, Regression results also support the adverse effect of COVID-19 confirmed cases on stock indices, abnormal returns through an effective channel by adding up investors' pessimistic sentiment on future returns and fears of uncertainties.
JenniferRudden (2020) in his research, ‗Impact of COVID-19 on the global financial market' has observed the spread of the novel coronavirus disease COVID-19 has severely impacted the global financial markets. COVID-19 has struck fear into the heart of the economy in the United States. The Dow Jones Industrial Average index has reported some of the biggest single-day gains and losses of its history, reflecting the highly volatile nature of the financial markets. The S&P 500 index and the Nasdaq Composite index have also battled to stay afloat in such rough waters. These unprecedented times have led to the U.S. Senate passing a two trillion U.S. dollar coronavirus aid bill to support the American economy.In Europe, the Financial Times Stock Exchange 100 index suffered its steepest one-day fall since 1987, and stock exchange indexes in Latin America also dropped dramatically as the coronavirus started to spread across the region. It was concluded in the study that, this is no ordinary downturn in the financial markets; the repercussions of the coronavirus are expected to be felt for many more months, possibly years.
Juan Carlos (2020) in the article, ‗Impact of COVID-19 on the world's major stock indices', studied various stock indexes in his article such as NASDAQ, S&P 500, Dow Jones, NSYE, FTSE, DAX, SOXX, IBEX 35, Shanghai Stock Exchange, Hang Sang Index, KOSPI, and NiKKEI etc. It was found that, stock markets around the world are seeing substantial declines year-to-date. Most indices are down by over -20%. U.S. and European markets were relatively late to appreciate the severity of the coronavirus. U.S. stocks actually increased in value throughout early February even as the virus was spreading throughout the country. Asian markets were the earliest to react to the coronavirus, declining throughout late January as the Chinese government prolonged the Lunar New Year. Stocks are down throughout Asia, including only -8.55% for the Shanghai Stock Exchange.
Stefano Ramelli (2020) in his article ‗What the stock market tells us about the consequences of COVID-19' has showed that the novel coronavirus represents a fearsome risk which is stirring feverish behavior by investors worldwide. The author shows that initially, economic expectations about international trade underlay movements in the stock prices of individual firms; later, concerns about corporate debt began to play a role. The study illustrates how markets are adjusting to the rapid emergence of a previously neglected risk. These results suggest that the market fairly quickly began to respond to concerns about the possible economic consequences of the novel coronavirus. In particular, the cross-section of stocks reveals that investors started to become concerned about potential amplifications of the COVID-19 shock through financial channels.
Tobias Adrian and Fabio Natalucci (2020) in their article ‗COVID-19 Crisis Poses Threat to Financial Stability' discuss that there is now 5% likelihood (an event that happens once every 20 years) that global growth will fall below -7.4 percent. For comparison, this threshold was above 2.6 percent in October 2019. As so often happens at times of financial distress, emerging markets risk bearing the heaviest burden. Since early March, high-yield spreads have skyrocketed notwithstanding recent declines, particularly in the sectors most affected by the pandemic like air travel and energy. Similarly, leveraged loan prices have fallen sharply-about half the drop seen during the global financial crisis at one point. As a result, ratings agencies have revised upward their speculative-grade default forecasts to recessionary levels, and market-implied defaults have also risen sharply.
Prasad Koparkar and Hetal Gandhi, CRISIL Research (2020) in their research on ‗The COVID-19 falloutquantifying first cut Impact of the Pandemic' it was observed that in the event of COVID-19 the sharp fall in equity indices and deterioration in bond yield of some key markets indicate the virus outbreak may have prolonged impact on the world economy and recover will not be as swift as envisaged before. In the research the analytics observed many indices and analysed that in the event of the COVID-19 all the indices fall down such as NIFTY 50 which come through 12.13% growth in between Jan 2019 to Jan 2020 has dropped to 25 % in the event of COVID 19 as same the US indices DOW JONES has dropped up to 30 % and UK FTSE 100 and Singapore FTSE sit have also dropped up to 32 % and 23% in the event of COVID 19 from Jan 2020 to March 2020.
Objectives:- 1. To study the volatility of Global Indices during the initial outbreak of COVID-19 2. To make a comparative analysis of impact of COVID-19 between Indian Indices and Global Indices

Event-study methodology:
Event study methodology has been adopted to empirically analyse the impact of a significant catalyst occurrence or contingent event on the value of that security. 30 January, 2020, when the Director-General of the World Health Organization (WHO) declared the outbreak of COVID-19 to be a Public Health Emergency of International Concern is selected as the event day.

Cumulative Abnormal returns:
The expected returns are derived using the market model. Ri,t = α+ βRmt + ∑i,t Ri,t is the return of index i and Rmt is the market return on day t (as the event day is day 0) within the estimated window, with "∑i,t as the statistic disturbance. After obtaining the estimated coefficients, the following formulas are applied to calculate the expected return and abnormal return (AR): E(Ri,t) = α+ βRmt ARi,t = Ri,t -E(Ri,t) E(Ri,t), Ri,t and ARi,t are the expected return, real return and abnormal return of index i on day within the event window. The average abnormal return of sample indices on day t is calculated AAR=1/N*∑AR Abnormal return and average abnormal return can be accumulated over time. Cumulative abnormal return (CAR) of index iover a while from t0 to t1 and cumulative average abnormal return (CAAR) are calculated based on below mentioned Equations CAR (t0,t1)=∑ARit(t=t0) T-Test:To study the impact of COVID-19 during different time-frames, ten different event windows consisting of 63 trading days after the event day are considered namely, (1, 6), (7,12), ( .T-test is adopted to test the significance of the results.

Analysis of Data Volatility of Different Global Indices
To assess the impact on different global indices, daily data of the selected indices are collected for the same period and the volatility is measured. The following table shows the volatility of the different global indices during the selected time period of COVID-19.

Impact of COVID-19 on Different Global Indices
The sentiment in the stock markets across the world is gloomy. This is reflected in the frequent crashes in the share markets in all parts of the world. Financial markets in India are witnessing sharp volatility currently as a result of the fallout in global markets. The fall is in line with the global benchmark indices as the domestic market usually tracks the major global indices and the high volatility is likely to continue in the near future.

Results:-
The mean and standard deviation of the composite index return before and after the event are given in Table 2. As the basic statistic description, where Panel-A shows the data from 31 Jan 2019 to 29 January, 2020 and Panel-B shows the data from 31 January, 2020 to 04 April, 2020. Comparing the mean returns prior to declaration of COVID-19 as a pandemic as of January 30, 2020 and post the declaration, the indices for France, Germany, Italy, the UK, the USA, India display a decrease in the mean returns. Similarly the volatility of all the affected countries have increased post the period of January 30, 2020.  Table 3 show the result of first window (1,6), the particular window is just after the date of health emergency which was 30 st Jan 2020. It is observed that there is no impact immediately after the event date because all the CAR (cumulative abnormal return are positive. Further, t-test with the significance level of 5%, results show that there is no negative impact on particular event.  Table 4 shows the second window (7,13) which is from the date 10 th Feb 2020 to 18 th Feb 2020.It is observed that most of the CAR are positive accept the UK indices and the Indian indices. Thus, apart from UK and India none of the countries are showing significant impact. Further if we observe the t-test results, none of the t-statistics show the negative significant impact. The UK and Indian indices t statistics have negative t value but it is not significant.    Table 7 shows the 5 th window and the most important window for the purpose of research. In this window we can observe that all the cumulative abnormal returns are negative that means in this window period which is the second week of March 2020, all the selected indices crashed. It is also observed that all the indices were at the lowest level during March 2020 and all the selected indices displayed a drastic downfall.
Further, t-statistics suggest that all the indices have negative t-statistics and all the values are greater than the significant level. Hence, it can be concluded that in this period all the indices were affected negatively. Further, it is observed that Ibex-35 and FTSE 100 are most affected whereas the USA indices NASDAQ and Dow Jones are the least affected indices compare to other indices.  Table 8 shows window (31, 36) suggests that expect IBEX 35 and FTSE-MIB which were the most affected indices in previous windows have positive CAR indicating a recovery for these indices. Further, it is observed that the US indices are most affected indices in this window as compared to the previous one, which suggests that USA indices wereaffected in the late March.T-statistics suggest that except USA and Indian indices all the other indices have the value of t statistics less than -1.96 indicating that in this window on that particular indices there is no significant impact which means that that indices are beginning to recover.    Similarly, t-statistics also suggest thatthere in no negative significant impact in this window time period.

Findings:-
The analysis indicates that during the selected COVID-19 period all the indices are highly volatile and most of them indicated around 30% volatility.Further the analysis suggests that during the selected period the indices' average return is around -35% which is a clear indication that globally the markets have severely impacted.
With respect to Indian indices the volatility observed is around 30% and the average return is around -38%. This suggests that Indian markets have been badly hit during the said COVID-19 period as compared to other global indices. Comparing the average return and standard deviation of the selected indices, average return for before COVID-19 period is positive and the standard deviation is very low in comparison to the average return and standard deviation during the period of Covid-19, which reinstates the fact that there was a negative impact of COVID-19 on global indices.
From the event study and t-test we found that the highest negative impact across all the indices globally was observed in the month of March 2020 However, during the month of April the indices suggested recovery which was confirmed by t-statistics indicating positive significance difference as well as the Cumulative Abnormal Returns also indicating a positive value.

Conclusion:-
This research has aimed to analyze the immediate effect of COVID-19 on the stock markets of the majorly affected countries. This research adds to the literature as it explores the unexpected outbreak effects on financial markets of a feared disease. From the viewpoint of an investor, the findings of this analysis illustrate the importance of not only the company's business factors but also the investment risks brought on by such a sudden event. The results suggest that COVID-19 outbreak has a significant negative effect on stock market returns across all affected countries and areas. Two plunges in stock markets AAR and CAA on day 1 and day 24 match the outbreaks in and out of Asia.
Results also indicate that stock markets of Asian countries react more quickly to the outbreak with so me of them recovering slightly in the later stage of the pandemic. Further, the results suggest that the confirmed cases of COVID-19 have significant adverse effects on major stock indices performances with those in India suffering a greater decrease in terms of abnormal returns.
As the COVID-19 epidemic now becomes a pandemic, we need to think of not only ways to avoid future public health problems but also financial issues as well. Fears of pandemic and policy measures to control disease transmission have contributed to a global supply shock, especially in the labor-intensive and manufacturing sector.
Stock prices represent the potential of future earnings, and investors see the pandemic as a dampening economic activity and are concerned about future revenue. Before the severity of the deterioration is evident, the normal investors' response would be to sell the stocks.

Limitations and Future scope for Research
In this research paper, the time period considered to identify the impact of COVID-19 on global indices is limited for the period of 31 st Jan 2020 to 30 th April 2020i.e. a period of 63 trading days. This paper is only confined to the analysis of 9 global indices including NASDAQ, Dow Jones, FTSE 100, IBEX 35, FTSE-MIB, CAC 40, DAX 30 composite, NSE and BSE. For further research, more global indices may be included and the time period of the study can be extended. As the global pandemic COVID-19 is still ongoing, an accurate impact is difficult to be predicted. However, the findings have significant implications for policymakers. A coalition of government officials, investment banks regulators, and the central bank would be required to tackle this challenge.