More than 200 countries are suffering from the COVID-19 pandemic, affecting both the health and economic sectors in the world economy. The Dow Jones and Standard & Poor’s showed that the share values of corporations in the U.S. dropped by 20% since mid-March 2020. Similar to the Nikkei (Tokyo Stock Exchange), prices of companies’ shares also fell significantly. Sri Lanka (Colombo Stock Exchange) has experienced a 9% decline in its share prices of the index over the previous week and was forced to close trading three times during this week since mid-March 2020. The composite stock price index of the Indonesia stock market weakened in line with the worry in the market about the effect of the COVID-19 pandemic on the global economy. On the morning of 8 April 2020, the composite stock price index opened with a drop to 64.06 points or 1.34% to 4714.58. This condition continued at least for the next two months.
COVID-19 also affected the Indonesian manufacturing sector. The sector suffered contraction in March. Industry activity is reflected by the purchasing managers’ index (PMI), describing raw material purchasing and capital goods that will be used in the production process in the near future. The Information Handling Services Markit reported a PMI Indonesia in March 2020 of 45.3, which is a decline compared with the previous months (51.9). This is the lowest of the PMI records, which started in April 2011, indicating that the Indonesian manufacturing sector declined due to stopping production.
As an economic instrument, the capital market is affected by its environment. Micro-economic effects, like company performance, company strategy change, finance report announcement, or company dividends, receive responses from capital market players [1
]. Changes in the macro-economy, like changes in saving interest rate and deposit, influx of foreign currency, inflation, and regulations and deregulations of the economy released by government, affect the price fluctuation and trade volume in the capital market. The effects of the non-economic environment, though not directly related to the dynamic occurring in the capital market, cannot be separated from stock market activities. The non-economic environment, like political issues and decisions, can trigger stock market fluctuation in capital markets around the world. Political events, like elections, can affect the price and volume of trade in the capital market because political events are related to the stability of the state economy. Political events also affect the negative trust of investors and may threaten a country’s stability, tending to receive negative responses from market players.
Many events affect the stock price on the market. These events have different characteristics. Certain corporate actions, like splits, right issues, and warrants, affect the stock price, though the effects may be slow. Incidental events that can happen any time, like the COVID-19 pandemic, boom explosions, mass chaos during president succession, and economic embargoes, may have drastic one-time impacts on stock price.
] mentioned three main kinds of market efficiency forms: weak, mid-strong, and strong. When historical market data and past prices are fully reflected by stock price but cannot predict future price, the market is considered to be in weak form. A mid-strong market form is when all information available to the public is fully reflected in stock price. A market is in strong form when all information, both public and private, is reflected in stock price. For determining weak and mid-strong markets, an early empirical test of the Efficient Market Hypothesis is conducted. This mid-strong market efficiency occurs when investors cannot use the published information and past price to gain abnormal returns. The efficiency of a mid-strong market is tested using earnings announcements information and the prompt adjustment in the stock price of the company.
The market in Indonesia is mid-strong. Information is examined to determine reactions, and the market will react when information about an event is accepted by the market. Market reaction is demonstrated by the change in price of related securities. The reaction can be measured using closing stock price. An event causes a change in stock trade volume, reflecting investor decisions. Information is important for investors and business players because investors and businesses use it to describe the market situation, both past and future. The completeness, accuracy, and timeliness of information can help investors and business players to make investment decisions. Information can give positive and negative signals, which can be known from the market’s reaction toward the information. If information gives a positive signal to the market, the market will react through increases in stock price. Conversely [3
], if information gives a negative signal to the market, the market will react through stock prices that are stable or decline. The faster information is reflected in stock price, the more efficient the stock market. Stock price will adjust quickly when there is new information appearing and absorbed by investors. An efficient factor-based market is a stock market in which the stock trades quickly and accurately reflects all relevant information. The efficiency of the stock market related to market reaction to the information constitutes market efficiency from the information side.
The COVID-19 pandemic has affected all countries around the globe, affecting capital market activities. Information embedded in the event can provide signals for investors making investment decisions. Information about the event can be perceived as positive, negative, or neutral news. The reaction of the capital market is indicated by the change in stock price and stock trade volume. Ramelli and Wagner [4
] stated that the market started to respond to apprehensions about economic challenges posed by the pandemic. Numerous studies related to the market response to COVID-19 have been conducted [5
]. Sansa [6
] illustrated the relationship between recorded COVID-19 cases and the markets of the financial system (Shanghai Stock Exchange and New York Dow Jones) from 1–25 March 2020, revealing the effect of COVID-19 on the financial markets. Toda [7
] showed that a model forecasted stock price reductions by 50% throughout the epidemic, but rapidly subsequent recovery because the epidemic is a short-lived labor supply shock. Under the optimum policy, the stock price exhibits a W-shaped configuration and remains about 10% more undervalued than the steady-state level for half a year.
] proposed that having a global COVID-19 death rate more than 1% would cause about a 0.02% cumulative reduction in the Standard & Poor’s 500 after one day, about 0.06% after one week, and about 0.08% of a reduction after a month. Alfaro et al. [9
] specified that stock revenues respond to daily unanticipated fluctuations in predicted cases based on standard models of infectious disease. Their results implied a decline in stock market volatility as the trajectory of the pandemic becomes less uncertain. In cross-country settings, Ru et al. [10
] found that stock markets reacted more quickly and strongly in countries that suffered from the 2003 severe acute respiratory syndrome outbreak, whereas Gerding et al. [11
] showed that stock price reactions were stronger in countries with a higher debt-to-GDP ratio. Ramelli and Wagner [4
] showed that, overall, from the perspective of stock market participants, the COVID-19 health crisis translated into a broader economic and financial crisis. Empirically, they investigated the effect of social distancing policies on activities of the economy and indices of the stock market. The results showed that the increasing number of lockdown days, decisions of monetary policy, and restrictions on international travel seriously influenced the level of economic activities as did the closing, opening, and lowest and highest stock price of major stock market indices. Conversely, the imposed restriction on internal movement and higher fiscal policy spending positively affected the level of economic activities. However, the increasing number of confirmed coronavirus cases did not significantly affect the level of economic activities [12
However, the research findings of Cookson et al. [13
] were contrary to reality in different financial markets. The findings showed that the financial markets of China remained robust and stable irrespective of the pandemic. Generally, the market remained steady compared with foreign markets despite the spread of the pandemic. This finding is in line with those of McKibbin and Fernando [14
], explaining that the movement in the financial market index, especially stock market, showed that the awareness of the investor will affect a specific industry (not the system). Sansa [6
] supported Xin Hua [15
], finding that the China financial markets remain strong and stable regardless of the COVID-19 pandemic.
The above findings differed between the previous studies concerning the effect of the COVID-19 pandemic on price trade transactions. Thus, our aim was to provide a clearer description of the phenomenon and its consequences. The research question was: is there a significant difference between stock price and stock trade volume before and after the occurrence of the ongoing pandemic of COVID-19?
4. Result and Discussion
The Indonesia stock exchange listed 56 customer goods companies, consisting of many subsectors: 30 companies in food and beverage, 9 pharmacy companies, 5 cosmetics and household goods companies, 5 cigarettes companies, 4 household tools, and 3 companies categorized as other. Each subsector of customer goods has different characteristics. Observed data included daily closing stock price and volume of stock trade three months before (−90 days) the emergence of COVID-19, September 2019, up to three months after (+90 days) the occurrence of pandemic, 20 March 2020. We obtained 2670 observation data both before and after the emergence of the pandemic for a total of 5340.
Based on the Wilcoxon signed-rank test (Table 1
), the data showed 228 negative ranks for stock price, 2442 positive ranks for stock price, and 0 ties. Thus, the total paired observation data were 2670. A negative rank indicates that the sample with the second group score (post-test) is lower than the first group score (pretest). Based on N
data, 228 stock prices suffered declines. Positive ranks indicate a sample with a second group score (post-test) higher than the first group score (pretest), denoting 58,057 positive spreads in the stock price between before and after COVID-19 emergence. This indicated that the stock price declined for 58,057 stocks after the pandemic. Ties in the second group score (post-test) were the same as in the first group score (pretest). The mean rank is the rate level, and the sum of ranks is the number of its rates. The average score of negative ranks of stock price was 254.64 and of positive ranks was 1436.42.
For the volume of stock trade using the Wilcoxon signed-rank test, there were 279 and 2390 observations with negative and positive ranks, respectively, and one tie. Thus, the total data of pair observation amounted to 2670 data of observation. Negative ranks were assigned to samples with a lower second group score (post-test) than the first group score (pretest). Based on N data, the volume of stock trade suffering a decline amounted to 279. Positive ranks were assigned to samples with a higher second group score (post-test) than the first group score (pretest). Thus, the positive spread between the volume of stock trade before and after COVID-19 emergence was 80,489.5, indicating that the volume of stock trades declined after the occurrence of the pandemic of COVID-19. Ties in the second group score (post-test) were the same as in the first group score (pretest). The average rate of negative ranks of volume of stock trades was 288.49, and that of positive ranks was 1457.17.
Based on Wilcoxon signed-rank test, the Z score was −43.296 with a p
-value (asymptotic significance two-tailed) of 0.000 (Table 2
). The value is less than the critical limit of the research, 0.05, so the first hypothesis is accepted. This means that there was a significant difference in the stock price before and after the COVID-19 pandemic emergence. Thus, a significant effect existed between COVID-19 and stock price. This finding is in line with the theory explaining that non-economic factors, like the occurrence of a pandemic, are not directly related to stock price influencing investor decisions to buy stock. Thus, it affects stock price. Table 3
lists the research findings based on industry type.
shows the differences in stock price and stock trade volume before and after COVID-19. The pharmacy industry showed a significant difference between price and volume of stock trade before and after COVID-19 because during a pandemic, the demand for drugs is high, which would have influenced investors making investment decisions. This triggered the increase in stock price and stock trade volume. This finding is in line with a previous finding [31
]. This was also observed in cosmetics and household goods, food and beverage, cigarette industries, etc. The policy of staying at home increased people’s daily needs. This affected investors’ investment decisions. The implementation of the stay-at-home policy is one piece of information captured by investors when making investment decisions.
presents the daily stock price of some companies during the three months before (−90 days) and three months after (+90 days) the emergence of COVID-19. Based on the figure, the daily stock price of each company fluctuated. At 90 days before the emergence of COVID-19, the daily stock prices of many companies were relatively stable, such as Sariguna Primatirta Tbk., Sekar Bumi Tbk., and Buyung Poetra Sembada Tbk., and the daily stock prices of many companies were rising, like Merck Tbk., Prima Cakrawala Abadi Tbk., Industri Jamu dan Farmasi Sido Tbk, and Ultra Jaya Milk Industry & Tra Tbk. However, the stock prices of Merck Tbk., Prima Cakrawala Abadi Tbk., Industri Jamu dan Farmasi Sido Tbk, and Ultra Jaya Milk Industry & Tra Tbk. three months after (+90 days) COVID-19 suffered declines.
Based on the research observations, we divided the period into three stages: incubation, pandemic, and fever. The incubation period ranged from 20 September 2019 to 20 November 2019, when the daily stock prices in the customer goods sector were still stable (Figure 2
). The pandemic emerged on 20 December 2019, but it had not yet affected stock price because COVID-19 had not yet globalized and the market had not responded. The fever period is the period after COVID-19 emerged, ranging from January to March 2020. Information related to COVID-19 had globalized and included news of virus transmission in Indonesia. This caused a quick market response related to the case. As shown in Figure 2
, the daily stock price in January 2020 indicated a change. The situation was worse for the stock prices in the customer goods sector in Indonesia. From February to March 2020, the stock price declined for many companies, indicating a change in price after COVID-19.
Stock price movement is significantly determined by market psychology. The instability of investors’ emotions causes excessive reactions. Reaction topping causes excessive market pressure, resulting in drastic stock price movements, both up and down. The results indicate that investors were shocked, so they considered business to be uncertain, which caused investors to make investment decisions. COVID-19 was used as a signal for stakeholders when making investment decisions. Investors make decisions based on information derived on fundamental analysis by estimating the value of fundamental factors affecting stock price in the near future, and on technical analysis by paying attention to the daily stock price and market psychology under the assumption of the efficient market hypothesis. An efficient market means that stock prices will reflect all information in the market.
This research finding is in line with those previously published [6
] of an examination of the effect of COVID-19 on the financial markets in China and the U.S. The findings indicate that a positive relationship existed between confirmed cases of COVID-19 and both the Shanghai Stock Exchange and the New York Dow Jones. Toda [7
] found that stock price declined up to 50% during the pandemic but recovered quickly because of the short-term shock to labor supply. Other relevant findings were also reported [8
]. Ramelli and Wagner [4
] found a positive and significant effect of COVID-19 on stock price transactions. However, our finding does not agree with the findings reported by Xin Hua [15
], who reported that, contrary to other world financial markets, China’s financial market continued to be robust and steady irrespective of the pandemic. China’s financial market remained generally stable compared with foreign markets despite the spread of COVID-19 at a devastating rate.
The second hypothesis of the research is also supported from a p
-value of 0.000, which is smaller than 0.05, and a Z score of −42.724. We found a significant difference between the stock trade volume before and after COVID-19. Figure 3
shows that the volume of stock trade fluctuated. The volume of Wahana Interfood Nusantara Tbk. stock traded before (−90 days) the pandemic was increasing. However, the volume of Wahana Interfood Nusantara Tbk. stock traded declined during the three months after (+90 days) COVID-19 emerged.
shows that during the incubation and pandemic periods, the stock trade volume of firms in the customer goods sector was stable. However, the effect was still not significant for the volume of stock trades of firms in the customer goods sector in Indonesia. The drastic changes in the volume of stock trade, whether up or down, occurred during the fever period, from January to March 2020, caused by the reaction of investors to sell and buy stock, demonstrated by the volume of daily stock price. Investors were severely shocked by the news. You et al. [34
] stated that the market often reacts negatively to incidents in the short term. However, in the long term, the market returns to balance and increases. The open innovation limits the barriers of communication and enhances the understanding level [35
]. The culture of innovation and strategic sharing brings new insights to customer service delivery in an effective and efficient manner [36
]. Innovation is an ongoing process, and it is stimulated from inside organizations [37
]. Open innovation requires a huge focus from researchers. There is a gradual development of employee attitude and training required that can be met through open innovation [38
]. Sustainable innovation can be achieved through an open innovation environment. This will be a very efficient and effective approach to a renowned sustainable innovation procedure [39
COVID-19 affected stock trade volume. This finding is in line with signal theory. This finding supports previous research findings [4
], proving the positive and significant effect of COVID-19 on stock price transactions. However, the findings did not support the research finding of Cookson et al. [14
] of China’s markets remaining profitable and progressive regardless of the pandemic.