The effect of COVID 19 pandemic on stock returns: Evidence from Istanbul Stock Exchange and OECD stock markets

In this dissertation, the impact of COVID-19 pandemic on stock return in Borsa Istanbul (BIST) and OECD stock markets is examined. This dissertation includes two separate research parts in the samples of BIST industrials indice stocks and OECD stock markets. In the first research part, it is investigated how COVID-19 induced investor sentiment, COVID-19 cases and government policy actions affect stock market return in OECD countries by employing panel data analysis. The findings indicate that COVID-19 induced investor sentiment negatively affects stock market returns. The growth in COVID-19 cases negatively impacts stock market returns. Moreover, the findings also show that government policy responses have a positive affect on stock market returns. Finally, country spesific results also indicate that the results may vary among countries. Also robustness model estimates show that the main results is robust against different variable specifications. In the second research part, it is investigated how stock returns response to declaration of COVID-19 as a pandemic by World Health Organization and which stock and firm related micro factors play role in market response in the sample of BIST industrial stock index stocks. Method of event study is applied to measure market response to declaration of COVID-19 as a pandemic. The results indicate that declaration of COVID-19 as a pandemic led to significant negative abnormal returns. Moreover, the results of independent sample t-test reveal that stocks of firms with smaller assets, lower share of instititional share holding, smaller cash ratio, smaller profitability and stocks with higher idiosyncratic volatilility has a lower cumulative abnormal return in reaction to COVID-19 pandemic. Finally, multivariate regression analysis is applied to determine the factors affecting cumulative abnormal returns in response to COVID-19. The findings show that the variables of asset size, instititional share holding ratio, cash ratio and profitability ratio positively affect cumulative abnormal returns.