Abstract
Purpose:
This article investigated the reaction of the Brazilian stock market to the Covid-19 pandemic and the characteristics that made some companies less vulnerable than others based on the measurement of abnormal returns using the event study methodology.
Originality/value:
The article contributes to informed decision-making, as the results expand the literature on the impacts of extreme events on the stock market of an emerging country, contributing to investors’ risk and portfolio management strategies.
Design/methodology/approach:
March 11, 2020, was considered the reference date, the day of the pandemic announcement by the World Health Organization. The event window included five days before and after the reference date, which covers some of the milestones of the pandemic’s beginning, such as the first internal transmission, the first death in Brazil, and the record of community transmission. The abnormal return was estimated using the market model, and the regression model was used to explain the accumulated abnormal return, analyzing the importance of the characteristics of the companies.
Findings:
The results showed that 98 companies presented negative and significant cumulative abnormal return (CAR), representing 71.53% of the total sample. Furthermore, the shares of the companies in the sample had an accumulated abnormal return of -26.85%, indicating the magnitude of the influence on companies’ prices. In specific terms, it was found that publicly traded companies that are larger, less leveraged, with lower turnover, and that adhere to responsibility practices suffered less adverse impact at the beginning of the pandemic.
Keywords:
Covid-19; market reaction; cumulative abnormal return; characteristics of firms; Brazil