The impact of COVID‐19 on Karachi stock exchange: Quantile‐on‐quantile approach using secondary and predicted data

• Published date: 01 November 2020
• Author: Rida Waheed,Suleman Sarwar,Sahar Sarwar,Muhammad Kaleem Khan
• Date: 01 November 2020
• DOI: http://doi.org/10.1002/pa.2290

ACADEMIC PAPER

The impact of COVID-19 on Karachi stock exchange: Quantile-

on-quantile approach using secondary and predicted data

Rida Waheed

1

|Suleman Sarwar

1

|Sahar Sarwar

2

|Muhammad Kaleem Khan

3

1

Finance and Economics Department, College

of Business, University of Jeddah, Jeddah,

Saudi Arabia

2

Department of Economics, Government

College University Faisalabad, Faisalabad,

Pakistan

3

School of Management, Xian Jiaotong

University, Xian, China

Correspondence

Suleman Sarwar, Finance and Economics

Department, College of Business, University of

Jeddah, Jeddah, Saudi Arabia.

Email: ch.sulemansarwar@gmail.com

During the pandemic, the stock markets of developed countries have reported a jit-

tery trend. The current study focuses on the impact of COVID-19 on Pakistani stock

market, which belongs to a developing economy. The findings of current study have

contradicted with the previous studies, which reported an adverse effect of COVID-

19 on developed stock markets. We conclude that KSE-100 index has confirmed

positive increment in stock returns. In addition, by using three predicted scenarios of

COVID-19, we report the significant increase in KSE-100 index. However, it seems

clear that the timely intervention of Pakistani government has safeguard the inves-

tors from utter disaster of stock market.

1|INTRODUCTION

COVID-19 is an infectious disease, which has diagnosed in December

2019, in Wuhan city of China and the first death reported on January

11, 2020 (Pharmaceutical Technology, 2020). Despite of having pre-

ventive measure by the authorities of Wuhan city, this virus spread in

different cities other than Wuhan and later it has spread, along with

travelers, in the different countries of the world. However, on

11 March, the World health organization (WHO) has declared this

virus a global pandemic and issue advisory to take preventive mea-

sures. Now within 4 months, this virus has been spread in more than

200 countries, having more than 3 million people infected and almost

0.2 million people died in this pandemic. In this pandemic, almost all

the countries have banded traveling in other countries, reduced or

almost stop flight operations, imposed lockdown where this virus

spread more, and quarantine affected people to stop this virus. Due

to these preventive measures, almost all the economies are now fac-

ing a drastic decline in economic activities, and the ratio of business

failure increases. Small businesses are looking for bailout packages

from the government and large businesses also facing difficult situa-

tions to retain their employees at the time of no economic activities.

This decline in the economic activities affect the stock markets, com-

modity markets and reducing trade between countries.

Researchers argued that the stock markets are always affected by

major events (Haque & Sarwar, 2013; Waheed, Wei, Sarwar, &

Lv, 2018). However, as this virus becomes global pandemic, it starts

effecting the businesses which is reflecting in world stock markets.

Some studies have examined the impact of COVID-19 on developed

stock return (Al-Awadhi, Al-Saifi, Al-Awadhi, & Alhamadi, 2020;

Kowalewski & Śpiewanowski, 2020), which reported that the Hang

Seng index and Shanghai stock exchange, United States and European

stock markets reflect negative returns. In March, United States market

hit by circuit brake mechanism, four times in 10 days. Similarly, United

Kingdom stock market index, FTSE, has a decline of more than 12%

worse after 1987 (Al-Awadhi et al., 2020).

1.1 |COVID-19 and Karachi stock exchange

In Pakistan, the first case of COVID-19 is reported on February

26, 2020 which has crossed the figure of 13,000, till conducting the

study. However, the recovery rate is better as compared to the devel-

oped countries, like Italy, France, and United States. The impact of this

pandemic situation on Pakistan's economy depends on the time taken

in taking preventive measures and the intensity of spreading the dis-

ease. According to the Asian Development Bank (ADB), this pandemic

situation can cost the Pakistan economy approximately $16.38 million

to $4.95 billion, nearly 1.57% of the overall GDP. The report also

mentioned that this pandemic cost more than 946,000 job losses. In

this way, a country that is at the recovery stage, in the last 2 years, is

affecting badly.

Trade is considered as the backbone of every economy as it

brings the foreign reserves in the country to support the balance of

payment and control exchange rate, etc. After this pandemic hitting

Received: 19 May 2020Revised: 5 June 2020Accepted: 27 June 2020

DOI: 10.1002/pa.2290

J Public Affairs. 2020;20:e2290.wileyonlinelibrary.com/journal/pa© 2020 John Wiley & Sons Ltd1of6

https://doi.org/10.1002/pa.2290