Impact of Wuhan Lockdown in Early Stage of COVID-19 Outbreak on Sector Returns in Chinese Stock Market

Abstract

The unprecedented Wuhan lockdown due to the outbreak of the COVID-19 pandemic provides a natural experiment that will elucidate its immediate impact on the stock market. Event study methodology is adopted to identify any short-run abnormal returns in the Shanghai Stock Exchange Composite Index and its ten component sectors. This paper reports empirical evidence on the negative short-run impact of the Wuhan lockdown in the face of the pandemic outbreak on all component sectors of the Shanghai Stock Exchange Composite. The health care and information technology sectors, which helped considerably in the fight against the pandemic, were resilient and outperformed the general market in the Shanghai Stock Exchange despite the lockdown. The eight other sectors performed at par with the general market. This confirmation of the counter-cyclical nature of the health care and information technology sectors during the lockdown, which enabled them to overcome the pandemic outbreak, provides valuable insights with which investors can adjust their portfolios in similar situations in the future in a timely manner.