The Scandinavian Stock Markets during the COVID-19-Pandemic: A Long-term Perspective

Abstract

This thesis examines the effect of COVID-19 on the Scandinavian stock market from 2020 to 2021, using a sample of 605 public companies through the event study methodology by calculating the Cumulative Average Abnormal Return (CAAR) and Average Buy-and-Hold Abnormal Return (𝐵𝐻𝐴𝑅̅̅̅̅̅̅̅̅) using both an equal- and value-weighted approach. Expected returns have been calculated using the market model using the STOXX Nordic Total Market Index. To expound results, a panel data regression analysis determined long term correlations between CAR and BHAR, and the independent variables: sectors, fear, lockdowns, restrictions, monetary- and fiscal policies.
The event study confirms that COVID-19 had uniformly adverse effects with a notable negative impact from February 2020 to September 2020. This was followed by a recovery period that spanned from September 2020 to December 2021. The initial negative effect was driven collectively by most of the sectors, however, certain sectors had decisive effects. Specifically, smaller stocks from the Energy and Utilities sectors in Sweden and Norway, and Real Estate stocks of all sizes, encountered the most pronounced negative consequences. Financials in all countries experienced lasting negative effects, in particular the largest Danish and Norwegian stocks based on (𝐵𝐻𝐴𝑅̅̅̅̅̅̅̅̅). The Healthcare sector experienced the lowest initial impact.
The panel data regression found that the Global Fear Index had a negative influence on abnormal returns throughout the period of research. Announcements related to vaccinations in Scandinavia showed signs of initial optimism, later replaced by pessimism. Monetary policy was shown to have a negative influence on abnormal returns in all countries. Fiscal stimulus had both positive and negative effects throughout the study. Most notably, the markets reacted negatively to all announcements until September 2020. Restrictions had negative effects initially in Denmark and Norway, which were later superseded by positive correlations. In Sweden, the effect was negative until the last window, which is surprising as Sweden had the most lenient approach to restrictions.
Future research could supplement our findings by using an industry peer-group benchmark to determine beta, assessing the most impacted sectors, identifying firm specific factors tied to poor performance, and analyze the effects of applied policies using a longer timeframe for the effects of interventions.