Response of the Chinese Stock Market to the COVID-19 Outbreak: An Analysis Using the Fama-French Five-Factor Model

Abstract

The Shanghai Stock Exchange 180 index (SSE 180) experienced a 17% decline from January 13 to March 23, 2020, due to the COVID-19 pandemic and the economic repercussions of measures implemented to curb the outbreak. However, from March 23 to August 13, the index rebounded significantly, achieving a 27% gain and ultimately ending 7% higher than its January 2020 level. This study investigates the response of the Chinese market to such unprecedented events, employing the Fama-French five-factor model as an analytical framework. The findings indicate that the Fama-French five-factor model remains robust in explaining the return rates of the Chinese stock market during the pandemic, consistent with prior research. Furthermore, the analysis suggests that COVID-19 had only a short-term impact on the Chinese stock market, attributable to the Chinese government's prompt and proactive measures to contain the virus's spread.