Comparison of the financial market conditions in Poland and selected countries during the pandemic and the Russian-Ukrainian war

Żebrowska-Suchodolska, Dorota; Karpio, Andrzej Article Comparison of the financial market conditions in Poland and selected countries during the pandemic and the Russian-Ukrainian war Journal of Banking and Financial Economics (JBFE) Provided in Cooperation with: Faculty of Management, University of Warsaw Suggested Citation: Żebrowska-Suchodolska, Dorota; Karpio, Andrzej (2023) : Comparison of the financial market conditions in Poland and selected countries during the pandemic and the RussianUkrainian war, Journal of Banking and Financial Economics (JBFE), ISSN 2353-6845, University of Warsaw, Faculty of Management, Warsaw, Iss. 20, pp. 80-92, https://doi.org/10.7172/2353-6845.jbfe.2023.2.5 This Version is available at: https://hdl.handle.net/10419/313478 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Journal of Banking and Financial Economics Journal of Banking and Financial Economics Volume 2023 Number 20 Article 5 March 2024 Comparison of the financial market conditions in Poland and Comparison of the financial market conditions in Poland and selected countries during the pandemic and the Russian-selected countries during the pandemic and the RussianUkrainian war Ukrainian war Dorota Żebrowska-Suchodolska Warsaw University of Life Sciences – SGGW, Poland , [email protected] Andrzej Karpio Warsaw University of Life Sciences – SGGW, Poland , [email protected] Follow this and additional works at: https://press.wz.uw.edu.pl/jbfe Part of the Economics Commons Recommended Citation Recommended Citation Żebrowska-Suchodolska, Dorota and Karpio, Andrzej (2024) "Comparison of the financial market conditions in Poland and selected countries during the pandemic and the Russian-Ukrainian war," Journal of Banking and Financial Economics : Vol. 2023: No. 20, Article 5. DOI: 10.7172/2353-6845.jbfe.2023.2.5 Available at: https://press.wz.uw.edu.pl/jbfe/vol2023/iss20/5 This Scholarly Research Article is brought to you for free and open access by Sekcja Wydawnicza Wydziału Zarządzania Uniwersytetu Warszawskiego/University of Warsaw Faculty of Management Press. It has been accepted for inclusion in Journal of Banking and Financial Economics by an authorized editor of Sekcja Wydawnicza Wydziału Zarządzania Uniwersytetu Warszawskiego/University of Warsaw Faculty of Management Press. 80 80 © 2023 Authors. This is an open access article distributed under the Creative Commons BY 4.0 license (https://creativecommons.org/licenses/by/4.0/) Journal of Banking and Financial Economics 2(20)2023, 80–92 Comparison of the fi nancial market conditions in Poland and selected countries during the pandemic and the Russian-Ukrainian war Dorota Żebrowska-Suchodolska Warsaw University of Life Sciences – SGGW, Poland1 [email protected] htt ps://orcid.org/0000-0003-1230-6413 Andrzej Karpio Warsaw University of Life Sciences – SGGW, Poland [email protected] htt ps://orcid.org/0000-0002-8826-8567 Received: 8 March 2023 / Revised: 4 August 2023 / Accepted: 8 September 2023 / Published online: 28 December 2023 ABSTRACT The initial period of the COVID-19 pandemic and the outbreak of the Russian-Ukrainian war had a signifi cant impact on fi nancial markets. The aim of the work is to analyse the behaviour of selected segments of the Polish fi nancial market in the initial period of the pandemic and war. The research is based on two measures of risk, relative and absolute. The research covers the period from 24 February 2022 to 22 August 2022. The research focuses on segments of the Warsaw Stock Exchange through the analysis of the following indices: WIG, WIG20, mWIG40, sWIG80, NCIndex, industry indices, and the TBSP treasury bond market index. The Warsaw Stock Exchange indices are also compared using variation coeffi cients and standard deviations with indices of selected world stock exchanges. After the start of the war, declines in the Warsaw Stock Exchange occurred with a delay of over a month. They can be linked to specifi c EU actions in the area of sanctions against Russia. Both risk measures indicate a similar response to the main indices, which can be interpreted as the high level of development of the Warsaw Stock Exchange, as compared to other stock exchanges. JEL classifi cation: C43, C49, D53, E44, G50 Keywords: capital market, fi nancial market, COVID-19 pandemic, Russian-Ukrainian war, measures of risk, market indices. 1 Corresponding author: Dorota Żebrowska-Suchodolska – Warsaw University of Life Sciences – SGGW, Nowoursynowska 166 St. 02-787 Warsaw, Poland. DOI: 10.7172/2353-6845.jbfe.2023.2.5 © 2023 Authors. This is an open access article distributed under the Creative Commons BY 4.0 license (https://creativecommons.org/licenses/by/4.0/) DOI: 10.7172/2353-6845.jbfe.2023.2.5 81 D. Żebrowska-Suchodolska, A. Karpio • Journal of Banking and Financial Economics 2(20)2023, 80–92 1. INTRODUCTION The initial period of the COVID-19 pandemic and the outbreak of the Russian-Ukrainian war were unprecedented events that had a signifi cant impact on fi nancial markets. Due to earlier research on the beginning of the pandemic presented in the works (Żebrowska-Suchodolska et al., 2021, 2022) covering about half a year (from 19 November 2019 to 15 May 2020), it was also decided to cover the half-year period of the beginning of the Russian-Ukrainian war (from 24 February 2022 to 22 August 2022). It seems that the assumed period largely refl ects the “shock” of fi nancial markets to events such as the pandemic and war. In the latter case, they were dealing with a series of actions by the European Union in the form of sanctions imposed on all projects in which Russia was involved. Undoubtedly, they have an impact on the behaviour of entities operating on capital markets. Therefore, the aim of the work is to a large extent a qualitative, but supported by elements of quantitative analysis, comparison of reactions of selected segments of fi nancial markets to the initial period of the pandemic and the Russian-Ukrainian war. The work focuses on the Polish stock market as the basic element of the capital market. Therefore, in the fi rst place, the behaviour of the segments of the Warsaw Stock Exchange was compared by analysing the following indices: WIG, WIG20, mWIG40, sWIG80, NCIndex, and the TBSP treasury bond market index. It should be noted that the indices describe qualitatively different segments of the stock market, primarily determined by the size of companies (except for the TBSP index). Thus, the knowledge of a large or small correlation between the percentage changes of indices shows investors’ interest in more or less risky markets. In the analysed periods, markets described by stock indices were relatively strongly positively correlated, but this is not always the case. This information is important in itself, as it shows that investors attributed a similar risk to individual market segments, understood qualitatively as the volatility of prices of fundamental companies (WIG20), relatively smaller ones (mWIG20, sWIG80) or even speculative ones (NCIndex). Due to editorial limitations, a detailed analysis of industry indices was abandoned, leaving only a comparison of variation and standard deviations (risks) in both analysed periods. The Polish capital market operates within the framework of the European Union, so it was decided that it is worth looking at how it behaves in comparison to other stock markets. For the purpose, quotations of the WIG20 index were compared with the German DAX index and the French CAC index. It was decided that the situation of the United Kingdom after its recent departure from the EU is worth analysing as it is still part of the European market. Moreover, due to the special involvement of the USA in helping Ukraine and leading the anti-Russian campaign, the DJIA index was included in the analysis. In the fi nal part of the work, quotations of EUR, USD, and GBD to PLN were dealt with, as an indicator of the situation in the currency market from the point of view of the Polish zloty. 2. LITERATURE REVIEW The global crisis caused by the COVID-19 pandemic, which started in China, has spread to all countries of the world. It affected the economies, and earlier, the world stock exchanges. The reaction of world stock exchanges took place earlier when information about the fi rst cases of the disease in China appeared. It was then that the stocks began to fall. However, the biggest drop occurred on the days when individual countries began to announce lockdowns. Because the largest reaction of the stock markets took place in the initial phase of the pandemic, many studies focus on the initial period. Then, the pandemic hurt global stock exchanges (He et al., 2020), (Scherf et al., 2022). The impact in the initial period of the pandemic was the strongest in Asian emerging markets (Topcu, Gulal, 2020). The reaction of stock markets also changed over time depending on the stage of the pandemic and the number of cases (Ashraf, 2020). Research on the impact of COVID-19 was also conducted for individual industries. Natural gas, food, healthcare, and software stocks posted strong positive © 2023 Authors. This is an open access article distributed under the Creative Commons BY 4.0 license (https://creativecommons.org/licenses/by/4.0/) DOI: 10.7172/2353-6845.jbfe.2023.2.5 82 D. Żebrowska-Suchodolska, A. Karpio • Journal of Banking and Financial Economics 2(20)2023, 80–92 returns, while oil, real estate, entertainment, and hospitality stocks fell sharply (Mazur et al., 2021). Financial markets were also studied in terms of their volatility (Mirza et al., 2020), (Yousef, 2020) or in terms of the relationship between COVID-19 and basic economic indicators (Uddin et al., 2021). The return of stock markets to their pre-pandemic state had barely occurred, and here was another reason for the crisis of the world’s economies and stock markets. It was the year-long war in Ukraine. The reaction was instantaneous (Izzeldin et al., 2023). On the day of the attack, the S&P 500 index fell by more than 10% from October 2020. The reactions of most global stock indices were also negative with the largest reaction on the day of the invasion (Boungou, Yatié, 2022). The invasion of Ukraine in 2022, generated negative cumulative abnormal returns for global stock indices (Boubaker et al., 2022). Stock exchanges of Hungary and Russia were the fi rst to react, then Poland and Slovakia. The reaction took place the day before the invasion. Stock markets of Australia, France, Germany, India, Italy, Japan, Romania, South Africa, Spain and Turkey reacted the day after the invasion (Yousaf, 2022). For commodity markets, the results were in line with those for stock markets except for intensity (Izzeldin et al., 2023). However, depending on the country and its involvement in the war, the response was different (Ahmed et al., 2022). Also, depending on the industries, the response varied. In the EU countries, the sector strongly affected by the war was the manufacturing sector. The fi nance and services sectors also showed a negative impact, even more so than the industry (Sun et al., 2022). The events of the outbreak of the pandemic and the war in Ukraine are called black swans in literature (Antipova, 2020), (Mielus, 2022). The European fi nancial market has been negatively affected by Russia’s aggression (Nimani, Spahija, 2023). Comparing the effects of the COVID-19 pandemic and the war in Ukraine, there was a lot of exchange rate volatility during both crises. However, greater exchange rate instability occurred during the war than during the pandemic. Also, in the case of fi nancial markets, the war had a more signifi cant impact on them than the pandemic (Mielus, 2022). A negative relationship was observed between war and the rate of return of the EU stock exchanges (Burdekin, Siklos, 2022), (Frey and Kucher, 2001), (Goel et al., 2017), (Hudson, Urquhart, 2015, 2022). In light of the cited review of literature, the authors analyse the behaviour of selected segments of the Polish fi nancial market in the initial period of the pandemic and war, fi lling the gap in the latter period research. The basis is two measures of risk, relative (coeffi cient of variation) and absolute (standard deviation). Based on superfi cial observations, it can be hypothesized that the comparison of both periods depends signifi cantly on which risk measure we use. In the case of the Polish market, the relative measure indicates a slightly different dominance of the war period, as compared to the pandemic period than the absolute measure. Another hypothesis results from the comparison of Polish market indices with selected foreign markets and states that the Polish market does not stand out from other markets. 3. METHODOLOGY AND DATA The basis for the analysis of the initial periods of the pandemic and war is the risk measured by the variation of the time series percentage return rates of indices and currencies. For variation comparison purposes, quotients of statistical coeffi cients of variation were calculated: r r V pandemic war v v = aa kk . (1) Where σ is the standard deviation of the sample and rˉ the mean rate of change. The traditional interpretation of the variation coeffi cient was taken as the standard deviation per unit value of © 2023 Authors. This is an open access article distributed under the Creative Commons BY 4.0 license (https://creativecommons.org/licenses/by/4.0/) DOI: 10.7172/2353-6845.jbfe.2023.2.5 83 D. Żebrowska-Suchodolska, A. Karpio • Journal of Banking and Financial Economics 2(20)2023, 80–92 the average daily rate of return, so it is a relative measure of risk. The sign of the V coeffi cient depends on the sign of the average rates of return in both periods, so a positive value is interpreted as compatibility of the trends prevailing in the markets during the pandemic and war, regardless of whether it is dealing with an upward or downward trend. On the other hand, a negative value proves opposite tendencies of changes. In addition, a positive value and less than 1 indicates less variation during the war, as compared to the pandemic period, and greater than one, the opposite situation. A negative value of V and less than –1 proves greater variation during the war (absolute values of variation are then greater than 1), while greater than –1 corresponds to the opposite situation. In both cases, it is dealing with opposite trends prevailing in both periods. In addition, standard deviations of quotations during the pandemic and war period were compared by calculating their ratio: R pandemic war v v =. (2) The R factor is related to the risk measured by standard deviation and treated as an absolute measure of risk (not related to average rates of return). A value greater than 1 proves a greater dispersion of quotations during the war, as compared to the pandemic period, i.e. a riskier period from the point of view of market participants. On the other hand, less than 1 corresponds to the opposite situation. Of course, it should be remembered that greater risk does not have a negative interpretation, because greater variation creates greater investment opportunities, but also greater potential losses. The data was taken from the stooq.pl portal. The considered time series concerned daily quotations. In the case of quotations of foreign indices, the lengths of the series slightly differed due to different days off from quotations, not the same in different countries. However, the fact was omitted as the differences concerned two days in the case of the DAX index and three days in the case of the WIG20. In addition, it should be noted that the period under investigation begins three months before the fi rst case of the disease in Poland. In contrast, the period of war is exactly on the day of the aggression, not earlier. It is due to the obvious fact that cases in other countries preceded the emergence of a pandemic in Poland, and therefore everyone expected infections in our country as well. In contrast, the war broke out unexpectedly, so there is no waiting period for it to start in the data used. 4. RESULTS 4.1. Trend on the Warsaw Stock Exchange First of all, the situation on the Warsaw Stock Exchange was examined by comparing the WIG, WIG20, mWIG40, sWIG80 NCIndex, and the TBSP treasury bond market index. A comparison of quotations is included in Table 1. It is obvious at fi rst glance that during the pandemic, they were dealing with a clear sharp decline in share indices, followed by a fairly steady increase. Only in the case of the New Connect market, the index quite abruptly exceeded the peak of quotations from the period of the beginning of the pandemic. The situation is different in the case of the bond market. The TBSP index recorded a slight decrease at the beginning of the pandemic and quickly began to grow dynamically, reaching a local minimum in mid-March, thus reacting to the emergence of the pandemic in Poland. The decline coincides with the period of sharp declines in stock markets measured by other indices. © 2023 Authors. This is an open access article distributed under the Creative Commons BY 4.0 license (https://creativecommons.org/licenses/by/4.0/) DOI: 10.7172/2353-6845.jbfe.2023.2.5 84 D. Żebrowska-Suchodolska, A. Karpio • Journal of Banking and Financial Economics 2(20)2023, 80–92 Table 1 Main indices of Warsaw Stock Exchange (logarithmic scale) Pandemic War WIG 11.0 10.9 10.8 10.7 10.6 10.5 Date 2019-12 2020-01 2020-02 2020-04 2020-05 2020-03 11.10 11.05 11.00 10.95 10.90 10.85 Date 2022-03 2022-04 2022-05 2022-07 2022-08 2022-06 WIG20 7.7 7.6 7.5 7.4 7.3 7.2 Date 2019-12 2020-01 2020-02 2020-04 2020-05 2020-03 7.70 7.65 7.60 7.55 7.50 7.45 7.40 Date 2022-03 2022-04 2022-05 2022-07 2022-08 2022-06 mWIG40 8.30 8.25 8.20 8.15 8.10 8.05 8.00 7.95 Date 2019-12 2020-01 2020-02 2020-04 2020-05 2020-03 8.45 8.40 8.35 8.30 Date 2022-03 2022-04 2022-05 2022-07 2022-08 2022-06 sWIG80 9.50 9.45 9.40 9.35 9.30 9.25 9.20 9.15 Date 2019-12 2020-01 2020-02 2020-04 2020-05 2020-03 9.900 9.875 9.850 9.825 9.800 9.775 9.750 9.725 Date 2022-03 2022-04 2022-05 2022-07 2022-08 2022-06 NCIndex 5.8 5.7 5.6 5.5 5.4 5.3 Date 2019-12 2020-01 2020-02 2020-04 2020-05 2020-03 5.90 5.85 5.80 5.75 5.70 5.65 Date 2022-03 2022-04 2022-05 2022-07 2022-08 2022-06 © 2023 Authors. This is an open access article distributed under the Creative Commons BY 4.0 license (https://creativecommons.org/licenses/by/4.0/) DOI: 10.7172/2353-6845.jbfe.2023.2.5 85 D. Żebrowska-Suchodolska, A. Karpio • Journal of Banking and Financial Economics 2(20)2023, 80–92 Pandemic War TBSP 7.60 7.59 7.58 7.57 7.56 7.55 Date 2019-12 2020-01 2020-02 2020-04 2020-05 2020-03 7.50 7.48 7.46 7.44 7.42 7.40 7.38 Date 2022-03 2022-04 2022-05 2022-07 2022-08 2022-06 Source: own study. The behaviour of stock indicators in the fi rst days after the start of the war is completely different. Equity indices are clearly on the rise, reaching their maximum at the turn of March and April, followed by a rather rapid decline. In the next period, they are dealing with increases, but smaller than during the pandemic. In the case of the TBSP index, there is a gradual decline, which reaches its minimum only at the end of June. The results of the analysis of coeffi cients of variation and standard deviations are presented in Chart 1. In both cases, the values are arranged in ascending order. Chart 1 Ratios of variation coeffi cients and standard deviations for the main WSE indices Source: own calculation. It should be noted that, except for the bond market, coeffi cients of variation ratios are positive, so the trends at the onset of the pandemic and the war are consistent. In the case of the TBSP index, the coeffi cient of variation during the pandemic period was more than two times higher in absolute value than during the war period, and the trends were opposite, which means that the variation during the war period was higher than during the pandemic period. Taking into account the other indices, only on the small companies market described by the sWIG80 index the pandemic period was characterized by greater variation than the period of the beginning of the war, the V coeffi cient is less than one. In other cases, the variation during the war was greater than during the pandemic. Against this background, the New Connect market stands out and the variation ratio is higher by an order of magnitude, as compared to other markets. The risk ratio graph shows a completely different situation. The New Connect market is characterized by the smallest value of the R-factor, so the dispersion of the rates of return around the average value during the pandemic was greater than during the war. A similar situation applies to other segments of the stock market, except the treasury bond market. In this case, the dispersion of quotations was much greater during the war. Table 1 – continued © 2023 Authors. This is an open access article distributed under the Creative Commons BY 4.0 license (https://creativecommons.org/licenses/by/4.0/) DOI: 10.7172/2353-6845.jbfe.2023.2.5 86 D. Żebrowska-Suchodolska, A. Karpio • Journal of Banking and Financial Economics 2(20)2023, 80–92 In the case of Polish industry indices, only variation coeffi cients and standard deviations in both periods are presented, as the presentation of the trends would take up too much space. As a consequence, results are shown in Chart 2 below. Chart 2 Ratios of variation coeffi cients and standard deviations for WSE industry indices Source: own calculation. Ratios of variation coeffi cients for industry indices show predominance of variation during the war, as compared to the period of the pandemic. Clothing, mining, real estate, fuels and energy are characterized by negative variation ratios, which means that the trends characterized by the average daily rate of return were opposite in both periods. However, the values of the V coeffi cient are less than –1, so variability of the war period dominates variation during the pandemic. A similar situation applies to industries such as construction, IT, automotive industry, banks and medicines, but in this case, the trends in both periods are consistent. Against this background, the pharmaceutical industry stands out, for which the value of the V coeffi cient is equal to 29.3. This shows an almost 30-fold advantage of variation during the war, as compared to the pandemic period with the same trend. By contrast, in the case of the chemical, food, and gaming industries, a higher variation prevails during the pandemic, but in the fi rst two cases the trends in both periods are opposite, and in the third they are consistent. At the adopted level of accuracy, the index of media companies was characterized by the same variation in both periods. For ratios of standard deviations R, the values vary in a small range from 0.6 to 1.9. The latter value applies to the food industry. In addition, banks and mining are characterized by the value of R = 1, which means the same risk in both periods. The remaining values of the ratios of standard deviations are less than 1, which proves that there is a slight risk advantage during the pandemic, as compared to the period of the war. As a consequence, it can be concluded that the risks in both borderlands were similar because no industry would stand out from the others. 4.2. Conditions of the Warsaw Stock Exchange and selected Foreign Stock Exchanges Representative stock market indices are commonly recognized as indicators of the economic situation prevailing on the stock exchanges. Therefore, the research took into account the Polish WIG20 indices and the following indices of the leading European stock exchanges: DAX, CAC40 and FTSC100. Due to the involvement of the USA in helping Ukraine in the war with Russia, the DJIA index of the US stock exchange was additionally taken into account. The table 2 presents the logarithmic scale of market indicators in the initial period of the pandemic and the Russian-Ukrainian war. In the authors’ work (Żebrowska-Suchodolska et al., 2021) concerning the initial period of the pandemic, statistics of stock exchanges were analysed, among others, by comparing the dynamics of declines. However, in the case of the initial period of the war, such an analysis cannot be applied. there are no distinguished sessions when the indices reach their highest and lowest values. In the case of the presented indices, there is a similarity between the quotations during the pandemic and separately during the war. As a consequence, the following comparison is obtained, as shown in Chart 3.