A black swan is an extremely unusual occurrence that is unanticipated and can have disastrous repercussions (Taleb 2007). A black swan event can take many forms, including a natural disaster, a war, a financial crisis, or a virus outbreak. A black swan has the following three main characteristics (Taleb 2007): first, it is an unpredictable event that occurs outside of usual expectations; second, it has a significant and far-reaching impact on the economy, society, and or the entire planet. Lastly, once it occurs, it is less random and more predictable than before. According to Teitler-Regev and Tavor (2019), black swan events such as natural disasters, terrorism attacks, and man-made disasters usually have a negative impact on the stock market and the economy as a whole; however, it has been discovered that the impact on stock markets is typically short-term, with stock markets quickly returning to normal levels a few days after the event. The stock market’s reaction to black swan events is determined by the company’s level of exposure to those events (Seetharam 2017). For example, firms such as those in tourism, travel, and leisure, are associated with lower returns than the non-exposed when an environmental disaster strikes.

Black swan events frequently lead to black swan investing, in which investors seek out stocks and other safe haven assets that will hold their value if the market falls due to a catastrophic event (Kuruppu and De Zoysa 2020; Lybeck 2017). Other researchers have shown that black swan events are associated with behavioral biases such as fear, loss aversion, and hindsight bias (Bekiros et al. 2017; Nafday 2009; Yarovaya et al. 2021). Another significant revelation is made by Tastsidis Olsson and Löfberg (2014), who point out that black swan events lead to herding behavior because investors tend to take sides taken by the masses, such as buying when others are also buying or selling when others are selling, and this often leads to inefficient markets. Traditional factor models cannot be relied on in forecasting stock returns in times such as the current COVID-19 pandemic.

Although the COVID-19 epidemic is regarded as a black swan event, the world did experience other related pandemics, such as severe acute respiratory syndrome (SARS), Middle East respiratory syndrome (MERS), and EBOLA, which were found to have affected stock markets around the globe (David et al. 2021). Chen et al. (2018) examined the impact of SARS on Asian financial markets and found that the epidemic weakened the stock market integration in the region. Nippani and Washer (2004), on the other hand, examined the impact of the SARS pandemic on stock market returns for all the affected countries, and the results indicated no significant negative impact except for the stock markets of China and Vietnam. However, a sector analysis by Chen et al. (2007), using an event study methodology, indicated that stocks in the hotel industry faced a decline in returns during the outbreak of the SARS. Other sectors, such as manufacturing, retail, and banking, were not significantly affected.

Choe et al. (2021) investigated the impact of the MERS on the Korean tourism industry and found that the occurrence of the pandemic negatively affected the performance of this sector and also depressed the Korean economy. The negative performance was mainly due to a reduction in the number of tourists visiting the country, which led to a loss of about 3.1 billion USD between the period of June 2015 to September 2015. Further analysis by Joo et al. (2019) shows that the MERS had a detrimental effect on other tourism-related industries, such as food and beverages, transportation, and accommodation.

Studies on the effects of Ebola on stock markets performance show that the news on the outbreak of the pandemic led to an increase in selloffs in affected stock markets, which negatively impacted the stock prices (Funck and Gutierrez 2018; Ichev and Marinč 2018). The effect was more pronounced in vulnerable and small industries such as the airline, food and beverage, and leisure industries. Ichev and Marinč (2018) further reveal that the impact of Ebola was more significant in the US, European, and West African regions and that fear and anxiety rather than real economic factors influenced the inventors’ decisions.

Several studies have been conducted to assess the impact of the COVID-19 pandemic on stock market performance. Researchers such as Xu (2021); Alam et al. (2021); Yousfi et al. (2021); Baker et al. (2020); Haiykir and Çetenak (2022) considered the impact of the pandemic on the stock markets of developed economies and found that the occurrence of the pandemic has led to a decline in stock market returns. These studies revealed that the increase in COVID-19 cases and deaths negatively impacted the stock market performance, while the imposition of measures to revive the economy, such as economic stimulus packages, helped the stock markets to recover. Yousfi et al. (2021) further highlight that the government restrictions such as lockdowns and social distancing made the COVID-19 pandemic have a more severe negative impact on stock markets than previous pandemics.

Studies from emerging markets also had similar findings to those from developed economies (Kharbanda and Jain 2021; Sachdeva and Sivakumar 2020; Topcu and Gulal 2020). Although Kharbanda and Jain (2021) used a GARCH model while Sachdeva and Sivakumar (2020) performed an event study, they both confirm that an increase in COVID-19 cases and deaths had a significant negative impact on stock market returns. Stock markets were found to be more sensitive to the pandemic during the first wave, but later on, the markets seemed to be less responsive. Topcu and Gulal (2020) further reveal that the impact of the pandemic on stock markets of emerging economies is smaller in countries where the government responded swiftly to put measures to curb the pandemic and also where there was more government support in the form of economic stimulus packages. This is further supported by Singh and Shaik (2021), who found that, as in developed markets, stock markets of emerging markets also quickly recovered when the government put measures to revive the economy.

Other studies, for example, Topcu and Gulal (2020); Ashraf (2020); Ledwani et al. (2021); Uddin et al. (2021) compared the performance of stock markets for emerging and developed economies. Although they conclude that the stock markets were negatively affected by the occurrence of the pandemic, it was found that news on COVID-19 cases and deaths led to an increase in volatility in developed markets more than in emerging markets. However, developed economies were more successful in managing stock market volatility than their emerging counterparts, indicating the fragility of emerging market structure and lack of trust in government policies among investors in emerging stock markets. Uddin et al. (2021) further highlighted that in developed markets, economic freedom, governance, and productivity were the most important factors in managing stock market volatility during the pandemic, while for emerging markets, quality of health services, economic support, and governance quality were the most significant factors. Topcu and Gulal (2020) further reveal that the impact of the pandemic differs even among the emerging markets of different regions. Their study found that the impact of COVID-19 was more severe in emerging markets of Asia than the European counterparts.

Ashraf (2020) examined the impact of the pandemic on 77 stock markets around the globe by applying a panel regression on daily stock market returns. Their findings reveal that COVID-19 restrictions that have an adverse effect on economic activity, such as social distancing and lockdowns, negatively affect stock market returns, but over the long term they have a positive effect due reduction in COVID-19 cases. However, government support programs, such as economic stimulus packages, testing, and quarantining, were found to be having a direct positive effect on stock market returns. More related research was performed by Phan and Narayan (2020) on the stock markets of 25 countries most affected by the pandemic. Through an event study analysis, the researchers found that 24 of the 25 stock markets recorded negative returns on the day the World Health Organisation (WHO) declared COVID-19 a global pandemic on the 11th of March 2020. Furthermore, it was found that 12 of the 25 countries, mostly European countries, recorded positive returns when the travel ban was imposed by the governments of those nations, while only 8 reacted positively to the imposition of the lockdown measures. Similar to Ashraf (2020), the researchers established that the introduction of the stimulus package had positive returns in most stock markets, although the effects were more significant in those countries that had already introduced the lockdown measures.

Most studies on COVID-19 and stock market performance have focused on aggregate stock market performance as measured by changes in the value of an index. However, there are a few studies in developed markets that went a step further and considered the impact of the pandemic on sector performance. For example, Elhini and Hammam (2021); Olczyk and Kuc-Czarnecka (2021) found that the pandemic had a negative impact on sectors such as communications, consumer discretionary, consumer staples, health, technology, and materials in the first three months after the occurrence of the pandemic. Other sectors, such as finance, the manufacturing industry, information technology, and utilities, demonstrated a significant positive relationship with the pandemic from the start of the pandemic, whereas the energy and real estate sectors appeared unaffected. In an event study analysis of sectors for the Australian stock exchange, Alam et al. (2021) show that the sensitivity of the sectors to the announcement of the pandemic differs among the sectors. On the day of the announcement, the retail, pharmaceutical, and healthcare sectors exhibited strong positive returns. Later on, telecommunications exhibited strong positive returns together with healthcare and pharmaceuticals, while the transportation industry continued to perform poorly.

Studies performed prior to the COVID-19 pandemic also confirm that stock market sectors react to the market crisis in different ways. For instance, a study by Ranjeeni (2014), which focused on New York Stock Exchange sectors, discovered that the global financial crisis had a positive influence on utilities, consumer staples, consumer discretionary, and health care while negatively impacting energy, information technology, and financial services. However, the materials and industrial sectors were more resilient to the crisis. On the other hand, Bekaert et al. (2014) analyzed 415 country-sector equity portfolios across 55 countries and found that the only sectors negatively impacted by the global financial crisis were materials, consumer cyclical, and financials.