CUD study reveals muted market response to COVID-19 vaccine announcements

Research shows contrast in pace and scale of recovery across US and UK stock markets

Sunday, October 24, 2021: A study conducted by graduate students at Canadian University Dubai (CUD) has revealed a muted response from the stock markets following the historic announcements on the COVID-19 vaccine programs in late 2020. The research found that, despite months of economic turmoil, the news that the world had been waiting to hear prompted some growth in both US and UK markets, but there was no indication of the dramatic surge that might signal confidence in the future outlook.

Conducted by MBA finance students, Shabbir Bohara, and Manar Abushosheh, the research is the subject of a paper entitled, “Do the COVID-19 Vaccines Boost Market Efficiency? The Case of the US and the UK”, which was presented at the recent Digital Futures International Congress, International Conference on Technology and Innovation Management 2021. The study analyzed data from the S&P500 for the US market, and the FTS100 for the UK market, over a three month period.

Revealing the rationale behind the research Shabbir explained: “The announcement of vaccine authorizations is an example of a positive shock, where we expect the markets to display greater volatility with higher than average stock returns. Starting from the date of the first positive results from vaccine trials in November 2020, we studied the data to assess the market efficiency theory, that strong markets react rapidly to new information.”

Manar continued: “We were aware of the dramatic impact of the negative information during the early stages of the pandemic, and we wanted to compare that with the market reaction towards this positive development. While there was an increase in average returns across both US and UK markets, it was not to the magnitude we had expected.”

According to the data analyzed, cumulative returns in the US increased from 2.81% at the beginning of the period to 9.5% by the end, while the UK market saw an increase from -0.80% at the beginning to 3.74% by the end. The average daily returns in the US and UK were 0.2% and 0.03% respectively, for the full three month period.

On the question of market efficiency, Shabbir said: “The hypothesis classifies markets as weak, semi-strong or strong, depending on how rapidly they integrate new information. In this case, the data shows that the US reacted more slowly than the UK. The FTSE100 took one day to reflect the vaccine’s announcements, while the S&P500 took several days.”

Considering the rationale behind these findings, Manar suggested: “When the vaccines were announced, COVID-19 cases were still growing, with lockdowns again being put in place. There was also a great deal of uncertainty surrounding the US elections and the subsequent events on Capitol Hill. This might have counter-balanced, to some degree, the impact of the vaccines’ announcements.”

Speaking about the significance of the study, project supervisor and Assistant Professor, Dr. Davide Contu, said: “The CUD MBA program offers students the opportunity to conduct original research that contributes to academic thinking in their chosen specialization. The positive feedback that Shabbir and Manar received from delegates at the international conference [Digital Futures International Congress 2021] demonstrates that the study has provided valuable insights into how the markets react as this unprecedented situation continues to unfold. Their preliminary assessment should lay the foundations for future studies in this field.”

News Releases