Impact of epidemics on stock return performance: An application on selected BİST sectors

In the historical process, humanity has witnessed various pandemics. These pandemics have caused many activities to change in almost every field and disrupted the normal flow of daily life. Stock markets, like other areas, were also affected by these events. Therefore, various measures have been taken by States, the World Health Organization and policy makers to protect against the negative consequences of these impacts. The study aims to measure the impact of the preventive decisions taken for the worldwide pandemics seen in Turkey after 2000 on stock markets. In this direction, whether pandemics significantly affect the efficiency levels of 24 sector indices traded in Istanbul Stock Exchange is tested with the event study method. The t-test statistic was used to measure the test results' significance level. In addition, 21 trading days of (-10,+10) days around the event dates were set as the event frame, and 251 trading days were considered for the forecast window. Lastly, abnormal returns (AR) and cumulative average abnormal returns (CAAR) are calculated and interpreted separately on the selected indices for six events. As a result of the analyses, it is observed that the AR and CAAR values of the analysed sectors differ from zero in negative and positive directions for each event. Moreover, a t-test was applied to determine the significance level of the findings obtained, and it was determined that only the cautionary decision taken for the first case of the COVID-19 outbreak was significant. In conclusion, the findings show that negative abnormal returns were generally observed in the sectors after the news of the pandemic; in contrast, negative returns were replaced by positive abnormal returns in the later stages of the event window. The findings obtained at the sectoral level reveal that the overreaction hypothesis is valid in Istanbul Stock Exchange. In other words, the evidence suggests that there is evidence of short-term overreactions in the market and that investors may earn abnormal returns by selling winners and buying losers as losers (from "bad news" portfolios) significantly outperform winners (from "good news" portfolios). Keywords: BIST Sector Indices, Pandemic Diseases, Paired Sample t-Test, Overreaction Hypothesis, Stock Returns.