How does Chinese stock market react to breaking news about COVID-19? Evidence from event study

Although the COVID-19 pandemic is no longer considered a public health emergency of international concern, research is ongoing to determine whether and how financial markets have been affected. Using an event study methodology, we examine Chinese stock reactions to breaking news about COVID-19 during 2020–2023, covering nine important events from the first declaration of the novel coronavirus to classifying COVID-19 from top category A to B in China. The empirical results show that the Chinese stock market reacts negatively to bad news, such as the breakout of COVID-19 and the dynamic zero-COVID strategy, and positively to good news, such as COVID-19 vaccine approvals, ending the zero-COVID strategy, and reopening boards. The overall intensity of reactions to bad news is stronger than that to good news. Small-sized stocks react more positively to good news and more negatively to bad news. Different industries have different reactions to different events; however, the sector that responds strongly and negatively to bad news does not have to respond strongly and positively to good news, which, to some extent, reflects their profitability performance during the pandemic. In China, consumer discretionary, utilities and real estate are the most negatively affected by the pandemic, while materials, health care, and energy are the most positively affected. This study has important implications for reminding market participants to pay attention to breaking news announcements about COVID-19.