COVID-19 and stock market performance: Evidence from the RCEP countries

As the world's largest trading bloc, the agreement of RCEP, which was formalized in September 2020, is believed to play a non-neglectable role in the post-pandemic recovery. Real economies and the capital markets of the participating countries will have greater interactions due to tariff reduction and negative lists. By looking into the shocks in early 2020 that affect the stock markets of RCEP participating countries, we measure the stock market reaction to common risks just before the RCEP agreement was formalized. Following return-based, volume-based and liquidity-based event-study approaches, we use daily data from 11 Asia-Pacific countries to examine the stock market reactions. We find that RCEP economies for which the agreement took effect on January 1st, 2022 showed better risk resistance in response to COVID-19 shocks. In the long run, trading benefits brought by the RCEP agreement are expected to form and strengthen a system of circular flow of international trading activities among the participating countries, which will in turn increase the risk resistance ability of their stock markets.

Automated summary

As the world's largest trading bloc, the formalization of the RCEP agreement in September 2020 is believed to have a significant impact on the post-pandemic recovery. Through an analysis of stock market reactions to common risks, it was found that RCEP economies, which saw the agreement come into effect on January 1st, 2022, exhibited better risk resistance against COVID-19 shocks. In the long run, the trading benefits brought by the RCEP agreement are expected to strengthen the risk resistance ability of stock markets among participating countries.