Immune or at-risk? Stock markets and the significance of the COVID-19 pandemic

The closure of borders and traditional commerce due to the COVID-19 pandemic is expected to have a lasting financial impact. We determine whether the growth in COVID-19 affected index prices by examining equity markets in five regional epicentres, along with a ‘global’ index. We also investigate the impact of COVID-19 after controlling for investor sentiment, credit risk, liquidity risk, safe-haven asset demand and the price of oil. Despite controlling for these traditional market drivers, the daily totals of COVID-19 cases nevertheless explained index price changes in Spain, Italy, the United Kingdom and the United States. Similar results were not observed in China, the origin of the virus, nor in the ‘global’ index (MSCI World). Our results suggest that early interventions (China) and the spatiotemporal nature of pandemic epicentres (World) should be considered by governments, regulators and relevant stakeholders in the event of future COVID-19 ‘waves’ or further extreme societal disruptions. •We investigate the link between COVID-19 and the prices of six international stock indices.•We confirm that a growth in COVID-19 cases largely explained changes in stock prices.•We also analyse the impact of a number of conventional market drivers, acting as controls.•COVID-19 remained significant across 4 of the 6 markets after their inclusion (exc. China and World Index).•Implied volatility was significant across all six markets; Oil and Credit Risk were also influential.