This chapter aims to test the hypothesis of an efficient market, in its weak form, in the stock markets of Brazil, China, South Korea, USA, Spain, Italy, in the period from December 2, 2020 to May 12, 2020. The results show that the market efficiency hypothesis is rejected in all markets. In corroboration the DFA exponents show long memories, which put in question the market efficiency, in its weak form, suggesting that the stock markets analyzed show some predictability. In conclusion, investors should avoid investing in stock markets, at least while this pandemic lasts, and invest in less risky markets in order to mitigate risk and improve the efficiency of their portfolios.
TopIntroduction
History has witnessed many epidemic diseases that have caused many deaths. Some examples are: the Black Plague “Plague Outbreak” which led to the death of 75 -100 million people in the period of 1347 and 1351; the Bloody Fever that occurred in Mexico in 1545-1548; the cholera epidemic between 1899 and 1923; the AIDS virus that first appeared in Cameroon in 1908; the severe acute respiratory syndrome (SARS) that was relevant in Asia and Canada between 2002 and 2003; and more recently Ebola and swine flu. The Covid-19 coronavirus is an outbreak that first appeared in December 2019 in Wuhan City, Hubei Province, China (Ruiz Estrada, Park, Koutronas, Khan, and Tahir, 2020).
The Covid-19 pandemic has negatively affected global trade, as well as social and cultural life, tourism, trade in goods, production and sectors such as transport. Thus, rating agencies such as Moody's and Standard & Poors have lowered China's growth forecast for 2020 (Liu, Manzoor, Wang, Zhang, and Manzoor, 2020).
In line with all these negative effects and as the global pandemic (Covid-19) was evolving, stock markets broke sharply in the week of 24-28 February 2020. The UK's main stock index (FTSE100) fell 13%, while the DJIA and S&P500 stock market fell 11-12%, respectively, being the sharpest weekly drop since the subprime financial crisis of 2008. On March 9, 2020, the oil war between Russia and Saudi Arabia in 2020 caused Europe's stock markets to fall by almost 8%, with the Italian market (FTSE MIB) breaking by 11.17%. Asian markets also fell, and the S&P 500 index fell 7.60%. On March 12, 2020 and after the ban on travel from Europe to the U.S., stock prices fell sharply. The DJIA stock market fell 9.99%,and the S&P 500 and NASDAQ indices each fell about 9.5%,while Europe's major stock markets had fallen more than 10% (Ashraf, 2020; Ms Krishika Narayan, 2020; Ngwakwe, 2020; Okorie and Lin, 2020; Şenol and Zeren, 2020; Yan, Stuart, Tu, and Zhang, 2020).
Speculation in financial markets is a way that involves the attempt of international investors to be able to anticipate asset prices. Market regulation itself, by trying to avoid this process, reduces in part, the informational efficiency of financial markets. The information that reaches the market is not adjusted immediately in the stock prices, which sometimes causes some imbalance (Dias, da Silva, and Dionísio, 2019; Dias, Heliodoro, and Alexandre, 2020; Dias, Heliodoro, Teixeira, and Godinho, 2020; Dias, Heliodoro, Alexandre, Santos, and Farinha, 2021).