Abstract:
Africa has contributed positively to the financial liberalization that the world
seeks to achieve. However, series of factors have been studied to have
influence on stock prices of which pandemic is one of the key factors. Due to
the variations of stock market prices among countries during pandemic, this
study seeks to analyse the factors contributing to these discrepancies by
considering the moderating role of country risk on the relationship between
pandemic and stock return. Country risks is one of the country level factors
influencing the stock market. This study, therefore sought to analyse the role
of country risk on the relationship between pandemics and stock returns in
Africa. The study was centered on the Efficient Market Hypothesis and
Arbitrage Pricing Model. The research philosophy employed in the study was
positivism whereas the study design was explanatory research design. Annual
panel data between the period 2000 to 2020 from fifteen Africa countries were
used in the study. Mixed panel estimation techniques including Fixed Effect,
and Random Effect were used to test the hypothesis of the study. The study
found that stock markets react negatively during pandemic era. Political risk
and economic risk had a negative impact on stock returns in Africa. The study
also found that there was a positive significant impact of the interaction
between pandemic and political risk on stock returns. The interaction term
between pandemic and financial risk was also significant. Based on the
findings above, the study recommended that political stability must be managed
extremely well to reduce the negative impact of the pandemic on stock returns.
Reduction in corruption would prevent stock market regulators from bribing their
way through to erect barriers to investment in the stock market.
