Early COVID-19 Policy Response on Healthcare Equity Prices

Abstract

Purpose: This study investigates the implementation of the short selling ban policy imposed by the Italian stock exchange on healthcare stock prices, as a tool to mitigate COVID-19 price effects. Important contributions are in terms of assessing (i) the effect of the temporary short selling ban on restricted healthcare stocks, (ii) the effect of COVID-19 cases and crude oil price volatility onto healthcare stocks, and (iii) whether COVID-19 resulted in a change in the risk and average stock price of healthcare stocks.

Design/methodology/approach: The methodology involves impulse responses to capture the shock of the short selling ban onto healthcare stocks, and Markov switching regimes to capture the effect of COVID-19 onto the risk and prices in the healthcare industry. Daily data from 9th November 2018 till 23rd December 2020 is used.

Findings: Findings suggest there were significant changes in average prices in healthcare technology and healthcare services stocks before, during and after the short selling ban. Shocks to the number of COVID-19 cases and crude oil price volatility impacted healthcare stocks but lasted only for a few days. While daily changes in the number of COVID-19 cases impacted some healthcare stocks in the presence of a two-state Markov regime, insignificant coefficients and relatively low duration suggest that the short selling policy did not significantly change the average price and risk in healthcare stocks to explain a two-state regime in the healthcare industry.

Research limitations/implications: Insignificant coefficients in a two-state Markov regime reinforce that short-selling policies have a short-lasting effect onto healthcare equity prices. The findings are limited by the duration of the short selling policy, the pandemic event and the healthcare industry.

Originality/value (mandatory): This is the first study to look at the impact of early COVID-19 and short selling ban policy on healthcare stocks.

Keywords: COVID-19, short-selling ban, healthcare stock prices

JEL Classification: G15, I11, I18