Asymmetric effect of COVID-19 pandemic on E7 stock indices: Evidence from quantile-on-quantile regression approach

Various studies have been conducted to examine the effect of COVID-19 on stock prices. However, these studies failed to examine the effect across quantile distributions of both dependent and independent variables. This study pays particular attention to the emerging 7 countries and examines the effect of the novel coronavirus 2019 (COVID-19) pandemic on stock prices. We use quantile unit root and quantile cointegration tests to examine the integrating properties of COVID-19 cases and deaths with stock prices and use quantile-on-quantile regression (QQR) to examine the relationship across quantile distributions of both dependent and independent variables. Quantile cointegration estimates indicate that stock prices are integrated with COVID-19 cases whereas QQR estimates indicate a weak positive relationship at the upper quantiles of stock prices, and a strong negative effect is found at the lower quantiles of stock prices. Policy implications are recommended based on the findings of this study.