Downside risk-return volatilities during Covid 19 outbreak: a comparison across developed and emerging markets

This research study evaluates the impact of the Covid 19 pandemics on the downside risk-return volatilities across the four stock markets of the USA, UK, China, and Pakistan. The pandemic results in severe economic and financial consequences both at micro and macro levels as well as across the stock markets of various countries. The selected stock markets of the USA, UK, Pakistan, and China are significantly affected in terms of both investor risk and return during the pandemic time. The entire period distribution of the risk exhibited the downside risk behavior of both markets and investors’ serious concern regarding their investment strategies. Using high-frequency data from January 2020 to April 2021, the findings of the study reveal more of the downside abnormal returns across both markets. The impact is larger and high in developed markets of USA and UK compared to the emerging markets of China and Pakistan. The outcomes of the various value-at-risk models disclose the higher downside risk implications for all markets, larger for developed countries. Similarly, the three stock markets of the USA, UK, and China were found to be significantly connected during a pandemic. Investors’ reactions were positive and high in case of positive news outbreaks and dwindling in case of negative news and downside impact. The outcomes of the study are useful for investors, portfolio managers, investment advisors, and others to understand the dynamics of the pandemic situation and devise effective strategies to overcome the severities of downside risk.