Effects of COVID-19 on Global Financial Markets: Evidence from Qualitative Research for Developed and Developing Economies | SpringerLink

The novel coronavirus disease (COVID-19) is an infectious disease that spreads rapidly to almost all countries worldwide and caused a global pandemic. The total cases and mortalities due to COVID-19 pandemic have increased sharply in the last months of 2020 and in 2021. This rapid spread of cases and deaths due to the COVID-19 pandemic had a significant negative impact on the global economy and on the financial markets.

This global crisis that has been described as “humanity’s worst crisis since World War II” by the UN Secretary-General Antonio Guterres (France24 2020), strongly impacted different aspects of the global economy (Donthu and Gustafsson 2020; Louhichi et al. 2021; Mulugeta et al. 2021; Padhan and Prabheesh 2021; Wunder et al. 2021; Vieira et al. 2021), by nearly 2.7 trillion US dollars as estimated by Bloomberg (Bloomberg 2020). Based on the OECD Interim Economic Outlook (March 2020), the pandemic is a crucial threat to the economic growth of all countries in 2020. Table 1 reports real GDP growth for some countries from 2019 to 2021:

Table 1 Real GDP growth of countries, 2019–2021, %

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The pandemic’s main challenge for the global economy is its negative consequences on efforts to achieve the 2030 agenda for sustainable development (Elavarasan et al. 2021; Fagbemi 2021). The pandemic has created an unprecedented situation in which the potential threats for social health, education, economy, and green projects have increased sharply. Governments have faced many new fiscal challenges that can be considered a threat to achieving sustainable development goals (SDGs). Fenner and Cernev (2021), Wang and Huang (2021), and Taghizadeh-Hesary et al. (2021) argue that the negative consequences of pandemics have diverted funding to SDGs. Pan and Zhang (2020) state that one of the major impacts of the pandemic on the global economy is its role in the de-globalization of development and lowering the financing power of governments to reach a higher level of development that is against the targets of SDGs. Therefore, it can be addressed that the pandemic can negatively impact the achievement of the 17 defined SDGs (s) by the United Nations (e.g., see SDG1 (no poverty), SDG2 (zero hunger), SDG3 (good health and well-being), SDG4 (quality education), SDG8 (decent work and economic growth), SDG 10 (reduced inequalities), SDG 13 (climate action).

One of the most important markets in the global economy is the financial market, which forms financial flows worldwide. Global financial markets are vulnerable to various crises. Pitterle et al. (2015) argue that crises, particularly external ones, may cause economic slowdown, leading to rapid and continued commodities and financial market disequilibrium. COVID-19 is considered an external shock and crisis (UNCTAD 2020; Vittuari et al. 2021) for all countries globally, depicting that the financial market is experiencing vulnerability to the current pandemic. For instance, according to the volatilities of the important stock index of the S&P 500 (stock performance of 500 large economic firms in stock exchanges in the U.S.) shown in Fig. 1, it can be expressed that stock prices have faced great stress and reduction in the last months due to the pandemic and the uncertainty of its impacts on the global economy.

Fig. 1figure 1

Source Authors’ compilation based on https://us.spindices.com/indices/equity/sp-500

Trend of S&P 500 index (10.01.2019–14.04.2020).

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The trend of this index shows that since late February 2020, the stock price has experienced adverse change. However, due to the news about the Federal Reserve intervention and a financial support package (Martin 2020), the price has recovered since late March 2020.

Following the Center for Strategic and International Studies (CSIS) report in 2020, global commodities and financial markets are negatively affected by both demand and supply shocks resulting from COVID-19. Albulescu (2021) and Yousfi et al. (2021) show that the pandemic increases the volatility of financial markets in the US. The significant impact of the pandemic on financial markets has been expressed and proven by other scholars such as So et al. (2021) for the case of Hong Kong, Lyocsa et al. (2020) for the case of 10 famous indices, Ozkan (2021) for six developed countries, and Zaremba et al. (2021) for 49 countries.

Shiller (2020) believes that COVID-19 has brought pandemics of health and anxiety over the economic consequences of the pandemic. The second pandemic (the gray future of the global economy) as a negative signal may have hit financial markets in all countries. Therefore, studying and gathering financial experts’ opinions about the impacts of this decrease on the financial markets of developed and developing nations may bring fruitful results and concluding remarks for policymakers and scholars.

Despite some earlier studies on the effects of external shocks on financial markets, such as Bancit et al. (2016), Jin and An (2016), Castagneto-Gissey and Nivorozhkin (2016), Ankudinov et al. (2017), Atkins et al. (2018), Liu et al. (2019), and Samadi et al. (2021), this is the first study to consider and prioritize the impacts of COVID-19 on financial markets in developed and developing nations. To this end, we analyze the experts’ opinions through an MCDM (Multi-Criteria Decision Making) approach, namely Analytic Hierarchy Process (AHP), and based on the empirical part, we recommend some policy implications to enable financial markets to recover, which means opportunities for countries to improve the progress of SDGs.

This study contributes to the existing literature in different ways. First, the study of the impact of the pandemic on financial markets has been performed through a decision-making approach, namely AHP. This contribution provides the qualitative findings which can be addressed as the complementary materials for the quantitative results. Second, the analysis of impacts was carried out separately for developed and developing nations. This would be a fruitful research strategy due to the dissimilarities of developed and developing nations in the fields of capital power, market infrastructures and financial absorption. Third, the issue of how COVID-19 can affect financial markets is studied based on experts’ opinions and the concept of pairwise comparisons. This may solve the problem of inconsistency and validation of qualitative research methods.

The major findings of this research reveal that the effects of COVID-19 on financial markets differ between developed and developing nations. Hence, there is no similar pattern of COVID-19’s impact on financial markets among all countries’ levels. The economic criterion is the most essential transmission channel of COVID-19 to the financial markets of developed nations. In contrast, the social criterion has a more prominent role than the economic one as a transmission channel in the financial markets of developing nations. COVID-19 affects developed countries’ financial markets more through supply reduction, demand reduction, and economic instability. Regarding developing nations, the experts believed that confidence and expectations, changes in consumption patterns, and the bandwagon effect are the three most significant impacts of COVID-19 on financial markets.

The remainder of this paper is organized as follows: ‘Literature Review’ discusses the existing literature. The next section explains the methodology used in this study. ‘Empirical Results’ presents the empirical findings, and the last section concludes the paper with some policy implications.

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