Financial Markets and Portfolio Management

ANALYSIS OF THE IMPACT OF THE COVID-19 PANDEMIC ON ITALY STOCK

EXCHANGE INDICES
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Full Title: ANALYSIS OF THE IMPACT OF THE COVID-19 PANDEMIC ON ITALY STOCK
EXCHANGE INDICES

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Corresponding Author: NURKHODZHA AKBULAEV

Azerebaijan State University of Economics (UNEC)
AZERBAIJAN

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Corresponding Author's Institution: Azerebaijan State University of Economics (UNEC)

Corresponding Author's Secondary

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First Author: NURKHODZHA AKBULAEV

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Order of Authors: NURKHODZHA AKBULAEV

Fariz Ahmadov

Yusif Aliyev

Matanat Mammadova

Ilkin Mammadov

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Abstract: The article discusses the impact of the results of the coronavirus pandemic on the
prices of the Italian stock exchange indices. It is suggested that most of the global
economy and financial markets will suffer because of isolation and social distance. The
author investigates the impact of the COVID-19 outbreak on the Italian stock exchange
using historical data covering the period from March to April 2020. Based on this, the
goal of the work is to study the relationship between the daily total mortality of Covid-19
and the daily common cases of Covid-19 with the Italian stock markets where Covid-19
is widespread. This study examined the period of the COVID-19 pandemic in the spring
of 2020 in Italy, the results of which revealed a loss of stock returns and a high volatility
of stock returns during the COVID-19 period in Italy compared with the usual study
period. Statistically significant regression models have been constructed that
characterize the effect of morbidity and mortality in Italy during the COVID-19
pandemic on the price of 11 key indicators of the stock exchange. The econometric
model shows that COVID-19 had a negative impact on stock returns and a number of
other stock market indicators in Italy. It was revealed that the number of deaths from
coronavirus is statistically significantly correlated with all key stock market indices. The
calculations helped to identify that the price of the FTIT1300 index depends only on the
number of deaths, and not on the number of sick and recovered, in contrast to the
indices FTSE / MIB 40, INVIT40, FTIT8000, FTIT2000, FTIT5700, FTIT0001,
FTIT6000, FTIT7000. The dependence of the FTIT8000 index on the number of
patients with COVID-19 is the highest. In the future, these results will help predict the
consequences of the coronavirus pandemic and work out measures to quickly
overcome the severe stock market failures by investors. The study recommended that
regulatory authorities pursue a social and economic policy such as a stable political
environment, stimulation of local companies, diversification of the economy, and a
flexible exchange rate regime in order to improve the situation in the financial market
and attract more investors to the Italian stock exchange. In addition, alternative

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context of the coronavirus pandemic.

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ANALYSIS OF THE IMPACT OF THE COVID-19 PANDEMIC ON ITALY STOCK EXCHANGE INDICES

1 Abstract
2
3 The article discusses the impact of the results of the coronavirus pandemic on the prices
4
5 of the Italian stock exchange indices. It is suggested that most of the global economy and
6 financial markets will suffer because of isolation and social distance. The author investigates the
7
8
impact of the COVID-19 outbreak on the Italian stock exchange using historical data covering
9 the period from March to April 2020. Based on this, the goal of the work is to study the
10 relationship between the daily total mortality of Covid-19 and the daily common cases of Covid-
11
12 19 with the Italian stock markets where Covid-19 is widespread. This study examined the period
13 of the COVID-19 pandemic in the spring of 2020 in Italy, the results of which revealed a loss of
14
15
stock returns and a high volatility of stock returns during the COVID-19 period in Italy
16 compared with the usual study period. Statistically significant regression models have been
17 constructed that characterize the effect of morbidity and mortality in Italy during the COVID-19
18
19 pandemic on the price of 11 key indicators of the stock exchange. The econometric model shows
20 that COVID-19 had a negative impact on stock returns and a number of other stock market
21
22
indicators in Italy. It was revealed that the number of deaths from coronavirus is statistically
23 significantly correlated with all key stock market indices. The calculations helped to identify that
24 the price of the FTIT1300 index depends only on the number of deaths, and not on the number of
25
26 sick and recovered, in contrast to the indices FTSE / MIB 40, INVIT40, FTIT8000, FTIT2000,
27 FTIT5700, FTIT0001, FTIT6000, FTIT7000. The dependence of the FTIT8000 index on the
28
29
number of patients with COVID-19 is the highest. In the future, these results will help predict the
30 consequences of the coronavirus pandemic and work out measures to quickly overcome the
31 severe stock market failures by investors. The study recommended that regulatory authorities
32
33 pursue a social and economic policy such as a stable political environment, stimulation of local
34 companies, diversification of the economy, and a flexible exchange rate regime in order to
35
36
improve the situation in the financial market and attract more investors to the Italian stock
37 exchange. In addition, alternative investment directions are offered for investors operating on the
38 stock exchange in the context of the coronavirus pandemic.
39
40
41 Key words: Coronavirus, COVID-19, Italian stock exchange indices, econometric
42 model, mortality, correlation.
43
44
45
46
47 1. Introduction
48
49 The history of mankind has witnessed many epidemic diseases that have so far led to
50 numerous deaths. In the last 20 years, the following have been recorded: severe acute respiratory
51
52 syndrome (SARS), which was recorded in Asia and Canada between 2002 and 2003, Ebola and
53 swine flu.
54
55 Covid-19 coronavirus (2019-nCoV) is a type of outbreak that first appeared in December
56
57 2019 in the city of Wuhan, Hubei province, China (Estrada et al., 2020). It was declared a
58 pandemic by the world health organization (who) on March 12, 2020. In addition to China, there
59
60
was a serious increase in the number of cases and deaths, especially in Italy. These events began
61 to influence social and cultural activities around the world, and in Italy especially. Due to the
62
63
64
65
 virus, international flights between many countries were canceled, as well as border crossings
with dangerous countries were closed. In some countries, a state of emergency has been
1 declared, training has been suspended for a certain period of time, or the transition to an online
2
3 course system is another example of how Covid-19 affects life, especially in China, Italy, and
4 many other countries. In addition, there was the cancellation of matches of the Italian football
5
6 League Serie A, which is a significant indicator for the population of Italy. All these aspects
7 have led to a slowdown or shutdown of production, the closure of entire industries, and the plight
8 of small businesses with a small margin of financial strength.
9
10
11 The Covid-19 epidemic has a negative impact on global trade, investment, and social and
12 cultural life. The epidemic has particularly affected tourism, which is so important for Italy, trade
13
14
in raw and non-raw materials, and the manufacturing and transport sectors. Accordingly, the
15 rating Agency Moody'S and Standard & Poor's lowered their forecast for Italian economic
16 growth in 2020. Many countries that import goods from Italy or have their production facilities
17
18 in Italy have decided to stop this activity. Given all these negative consequences, it seems
19 inevitable that stock markets, economic growth and exchange rates will also have corresponding
20
21
changes in these situations. Accordingly, this study was aimed at studying the relationship
22 between Covid-19 and the stock markets in Italy, where this virus is most strongly manifested.
23 These relationships were investigated using a statistical model implemented in the Gretl
24
25 statistical program.
26
27
28
29 2. A review of the literature
30
31
32 Various international monetary organizations and platforms are warning that the recent
33 CAVID-19 will have serious consequences for the global economy and possibly surpass the
34 global economic crises of 2007/2008. In the world economic forum review, it is stated:
35
36 "Worldwide, the corona virus shock is very serious even compared to the great financial crisis in
37 2007 – 2008."
38
39
40
Literature data shows that COVID-19 has had a significant impact on stock markets
41 around the world. Indicators of the impact of COVID-19 on financial markets were noted in
42 various financial markets around the world, in particular in the US on the Dow and S&P index,
43
44 the trends in trading rates significantly decreased to respond to the situation of COVID-19 in
45 America and the world as a whole.
46
47 Experts in the field of Economics predicted a serious impact of COVID-19 on the
48
49 country's economy. Economic experts have analyzed that COVID-19 will have an impact on
50 social welfare and the economy as a whole, especially on trade in financial markets, overall
51
52 business in terms of imports and exports, production and fuel prices. Researcher J. Shambaugh
53 argued in support of this question that "therefore, the most important measures taken to limit the
54 spread of the pandemic will have the greatest impact on both broader welfare and the economy."
55
56 The researcher points out that COVID-19 had an impact on all financial markets in the world, in
57 particular, the trend in stock prices fell significantly and continuously. Another global indication
58
59 of the influence of financial markets around the world is the data from the Nikkei, which trades
60 on the Tokyo stock exchange. The Nikkei market price trend has also experienced share price
61
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 volatility and mostly a downward trend throughout the period following the COVID-19 outbreak
and the emergence of a worldwide pandemic.
1
2 Various literature sources suggest that COVID-19 will have a serious impact on the
3
4 global economy, with attention drawn to the fact that the world is heading for a global recession,
5 which will affect stock markets.
6
7 Ramelli and Wagner identified the response of financial markets to the recent COVID-19
8
9 pandemic. Experts have shown that financial markets have reacted quickly to COVID -19 as it
10 changes direction and becomes a pandemic in the process of spreading around the world. This
11
12 will lead to a global recession related to the reaction of financial markets to COVID -19. The
13 researchers clearly insisted that these early results indicated that the market was responding
14 fairly quickly to concerns about the possible economic consequences of the new corona virus .
15
16
17 Baret and his colleagues discussed in detail the impact of COVID -19 on financial
18 markets and banks in a 2020 article. The researchers argued that COVID-19 has a significant
19
20
impact on overall financial markets, as the world has recently witnessed a drop in stocks, oil,
21 stocks and bonds around the world. This indicates that COVID-19 has seriously pushed financial
22 markets in a different direction and responded to investment. Baret analyzes in detail and
23
24 explains that since February 21, 2020, bond yields, oil prices, and stocks have plummeted, and
25 trillions of dollars in almost all asset classes have sought safety.
26
27 From a global business perspective, COVID-19 has also had an impact. Various
28
29 companies experience a low level of production, which leads to a decrease in revenue collected.
30 Jim identified the scale of companies affected by the COVID-19 pandemic. Jim in his article
31
32 clarified that companies are experiencing lower revenues, higher operating costs and/or cash
33 flow problems due to COVID-19, which consequently affects the value of their shares and
34 causes a collapse in the stock market.
35
36
37 Russian researcher E. A. Barinov believes that as the world is experiencing an economic
38 downturn, economic recovery is only possible in the long term due to the serious large negative
39
40
impact of COVID-19 on the world economy . The ICAEW (2020) report on their contribution to
41 the report stated that " the COVID-19 pandemic led to a difficult, if not entirely unexpected,
42 hearing, but gave hope for a long-term recovery."
43
44
45
The problem of the Italian stock market has received little attention in the literature so
46 far. Segal and Gareth analyzed the sense of concern about investment in Italy and proved in
47 detail that fears about the impact of the coronavirus outbreak on the economy were justified, and
48
49 its economic impact spread to stock markets in March .
50
51 So, the economy's response to the CO ID-19 pandemic is believed to be causing concern
52
for investors in the stock markets. The literature suggests that as the COVID-19 increase spread
53
54 around the world, it led to serious concerns and uncertainty in stock markets, as the results of
55 various global markets became too volatile and stock prices declined significantly. At the same
56
57 time, Italy, as one of the most affected countries, is not considered much in the literature on the
58 impact of CAVID-19 on the economy and stock market.
59
60
61
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 3. Theory of the relationship between the epidemic and the stock exchange

1 The Covid-19 virus is the most common in Europe - Italy and France. In addition, Italy is
2 one of the countries where Covid-19 is spreading rapidly. The consequences of COVID-19 for
3
4 the Italian economy and financial markets are as follows: the economic blockade of major cities,
5 leading to economic losses, especially for the daily income from small and medium-sized
6
7
businesses, the withdrawal of money by investors from the stock market and the fall in oil prices
8 and the global economy. But against the backdrop of such significant economic changes , the
9 impact of COVID-19 can also not be overestimated, since it can lead to a huge external debt of
10
11 any country.
12
13 In addition, since the world is heavily dependent on Chinese goods and production, the
14 import of goods becomes a problem, because as the corona virus spreads, production and exports
15
16 are severely halted. Therefore, a large number of countries that depend on imports of goods from
17 China automatically suffer because of COVID-19. K. Larry explained in detail that the impact of
18
19 imports to China directly affected the export economy of countries around the world.
20
21 4. Objectives of the research
22
23 And so, the following tasks can be set:
24
25
- Conduct a theoretical study of the relationship between the overall mortality of Covid-
26
27 19 and the country's stock markets;
28
29 - Develop and implement, based on available data, an economic and mathematical model
30
31
that considers the relationship and strength of the relationship between virus-related mortality
32 and stock market indicators;
33
34 - To generalize the results of the analysis in the form of proof or refutation of the research
35
36 hypothesis.
37
38 The implementation of these tasks makes this work useful for such categories of
39 researchers as economists, sociologists, political scientists, as well as for managers of public
40
41 administration to predict the development of the economy as a result of the coronavirus
42 epidemic.
43
44 5. The goals of the reseacrh
45
46
47 The purpose of this study is to investigate the relationship between the daily total
48 mortality of Cavid-19 and the daily total cases of Covid-19 with the stock markets of Italy,
49
50
where Covid-19 is widely distributed. Achieving this goal will reveal a very relevant and
51 necessary relationship between coronavirus mortality and stock market indicators for the current
52 period of global economic development. In the future, this will help predict the consequences of
53
54 the coronavirus pandemic and develop measures for investors to overcome the severe stock
55 market failures as soon as possible.
56
57 6. Research methodology
58
59
60 When studying research in the literature, many studies have been found exploring the
61 relationship between epidemics and economic development. A wide variety of models are used.
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63
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65
 For example, D. stern and A. Gupta use a multiple regression model, revealing the relationship
between economic indicators and SARS incidence in Canada. N. Gomsen and R. Kaijen use a
1 linear model, highlighting the impact of coronavirus on the economy and the stock market.
2
3
4 But as of the date of this study, no in-depth research has been conducted that examines
5 the relationship between Covid-19 and the economic variables that characterize the stock market
6
7
in Italy as the most affected country by the pandemic. there Are studies: Lo and Tsang (2020),
8 M. Estrada (2020), and – in which researchers try to interpret the possible consequences of the
9 current state of the virus for the economy and the stock market in particular.
10
11
12 In this study, we discussed an economic and mathematical model that allows changes in
13 the level, trend, and independent variables due to the structure of the series. In the course of the
14 study, the selected model is evaluated for each possible structural break and statistical data is
15
16 obtained from the unit error test applied to the residuals.
17
18 So, this research attempts to identify the relationship between Covid-19 and stock
19
20
markets with empirical data on Italy using time series analysis, and this reveals the original side
21 of the work. The following sections of the study include the econometric method, data and
22 empirical conclusions, and the conclusions section, which discusses these conclusions and
23
24 presents suggestions for future research.
25
26
27
28 6. Research Model
29
30
31
The source data are presented by the daily prices of the indices of the Italian stock
32 exchange FTSE / MIB 40 (Y1), INVIT40 (Y2), FTIT1300 (Y3), FTIT8000 (Y4), FTIT4000
33 (Y5), FTIT2000 (Y6), FTIT5700 (Y7), FTIT0001 (Y8 ), FTIT9000 (Y9), FTIT6000 (Y10),
34
35 FTIT7000 (Y11) from 02.17.2020 to 04.30.2020.
36
37 FTSE / MIB 40 (Y1): Futures on the FTSE MIB - June '20, Futures on the FTSE MIB -
38 June '20.
39
40
41 INVIT40 (Y2): Investing.com Италия 40, Investing.com Italy 40
42
43 FTIT1300 (Y3): FTSE Italia All Share Chemicals
44
45 FTIT8000 (Y4): FTSE Italia All Share Financials
46
47
48 FTIT4000 (Y5): FTSE Italia All Share Health Care
49
50 FTIT2000 (Y6): FTSE Italia All Share Industrials
51
52 FTIT5700 (Y7): FTSE Italia All Share Travel & Leisure
53
54 FTIT0001 (Y8): FTSE Italia Oil & Gas
55
56
57 FTIT9000 (Y9): FTSE Italia Technology
58
59 FTIT6000 (Y10): FTSE Italia Telecommunications
60
61 FTIT7000 (Y11): FTSE Italia Utilities
62
63
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65
 Factor variables are:

1 X1 – the Number of cases of coronavirus (COVID-19), people.

2
3 X2 – Number of recoveries from coronavirus, people.
4
5
6
X3 – Number of deaths from coronavirus, people.
7
8 X4-Mortality from coronavirus among those who have it,%.
9
10 Using the Gretl statistical program, we will build significant econometric models of the
11
impact of morbidity and mortality rates of the Italian population from coronavirus on the key
12
13 indices of the Italian stock exchange.
14
15 7. Hypothesis
16
17 The hypothesis of the study is that the serious economic losses suffered due to the Covid-
18
19 19 pandemic in Italy were reflected in the country's financial markets, in particular the stock
20 market. A study of the main characteristics showing the dynamics and current state of the stock
21
22 market in Italy will allow us to determine the severity of the impact, which is presumably very
23 high.
24
25 Based on this hypothesis, the econometric applied part of the study will use a
26
27 mathematical model to determine whether there is a long-term relationship between variables,
28 and to test this relationship, it is necessary to determine the stationary levels of indicators that
29
30
characterize the development of the Italian stock market. This will use the available statistics.
31
32 8. Results and discussion
33
34 First of all, it is necessary to analyze the correlation between the features. In table 1, we
35
36
present the results of calculating the correlation coefficients between the explanatory factors and
37 the resulting variables.
38
39 5% critical values (bilateral) = 0.2732 for n = 52. Significant correlation coefficients are
40
41 highlighted in color (Table 1).
42
43 Table 1. Correlation coefficients between Xi and Yj
44
45 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11
46
47
X - - - - - - - - - -
48 0,178
49 1 0,635 0,622 0,119 0,703 0,582 0,565 0,499 0,298 0,482 0,643
50
51 X - - - - - - - - - -
52 0,298
2 0,495 0,482 0,096 0,569 0,418 0,417 0,404 0,140 0,399 0,515
53
54
55
X - - - - - - - - - - -
56 3 0,774 0,766 0,288 0,778 0,343 0,809 0,754 0,622 0,690 0,601 0,742
57
58 X - - -
59 0,172 0,165 0,221 0,129 0,121 0,122 0,157 0,178
4 0,067 0,267 0,007
60
61
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 Correlation coefficients show that the death rate from coronavirus among the sick does
not have a statistically significant relationship with the price of the Italian stock exchange
1 indices. The number of deaths from coronavirus is statistically significantly correlated with all
2
3 the key indices of the stock exchange.
4
5 It is also worth noting that the price of the ftit1300 index depends only on the number of
6
7
deaths, but not on the number of sick and recovered, unlike the FTSE/MIB 40, INVIT40,
8 FTIT8000, FTIT2000, FTIT5700, FTIT0001, FTIT6000, FTIT7000 indices.
9
10 Factors X1, x2, and X3 are significantly interrelated with each other, which indicates the
11
12 collinearity of factors and will lead to unreliability of coefficient estimates when constructing a
13 multiple regression model.
14
15 The analysis of paired models of the dependence of the key indices of the Italian stock
16
17 exchange on the number of sick, recovered and dead was carried out using the least squares
18 method, based on which tests were made to verify the feasibility of Gauss-Markov conditions
19
20
using Gretl tools:
21
22  heteroskedasticity of residues - White test;
23  autocorrelation of residues - Darbin-Watson test;
24
25  normality of the distribution of residues.
26
27 The simulation results are presented in tables 2, 3 and 4.
28
29 The data in table 2 show that two models of the dependence of the Italian stock exchange
30
31 indices on the number of patients with coronavirus are not statistically significant with 95%
32 reliability.
33
34
Table 2. Paired linear models Yj from X1
35
36
37 Significance
38 J Index Regression equation Relevance b of the R2
39 model
40
41
1 FTSE/MIB 40 Y = 20915,846 – 0,046 X1 yes yes 0,403
42 2 INVIT40 Y = 2041,192 – 0,004 X1 yes yes 0,386
43 3 FTIT1300 Y = 12827,175 – 0,003 X1 no no 0,014
44 4 FTIT8000 Y = 11205,847 – 0,033 X1 yes yes 0,495
45
46
5 FTIT4000 Y = 194633,241 + 0,069 X1 no no 0,032
47 6 FTIT2000 Y = 30297,162 – 0,066 X1 yes yes 0,338
48 7 FTIT5700 Y = 33787,933 – 0,097 X1 yes yes 0,319
49 8 FTIT0001 Y = 13257,405 – 0,024 X1 yes yes 0,249
50
51 9 FTIT9000 Y = 84952,837 – 0,091 X1 yes yes 0,089
52 10 FTIT6000 Y = 10927,650 – 0,013 X1 yes yes 0,232
53 11 FTIT7000 Y = 38940,496 – 0,070 X1 yes yes 0,414
54
55
56
57 The dependence of the FTIT8000 index on the number of patients with COVID-19 is the
58 highest - 49.5% of the variation in the price of the index for the period from 02.17.2020 to
59
04.30.2020 is due to the variation in the number of cases.
60
61
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65
 The value of R2 for all models of Table 2 does not exceed 0.5 (50%), which indicates a
low share of the variance explained by the models in the total price variance of the Italian stock
1 exchange indices.
2
3
4 Table 3. Paired linear models Yj from X2
5
6 Significance
7 J Index Regression equation Relevance b of the R2
8
9
model
10 1 FTSE/MIB 40 Y = 20059,294 – 1,454 X2 yes yes 0,245
11 2 INVIT40 Y = 1957,895 – 0,139 X2 yes yes 0,233
12 3 FTIT1300 Y = 12775,447 – 0,097 X2 no no 0,009
13
14
4 FTIT8000 Y = 10624,905 – 1,090 X2 yes yes 0,323
15 5 FTIT4000 Y = 193355,557 + 4,731 X2 yes yes 0,089
16 6 FTIT2000 Y = 28894,478 – 1,927 X2 yes yes 0,175
17 7 FTIT5700 Y = 31809,212 – 2,913 X2 yes yes 0,174
18
19 8 FTIT0001 Y = 12843,804 – 0,780 X2 yes yes 0,163
20 9 FTIT9000 Y = 82051,621 – 1,752 X2 no no 0,020
21 10 FTIT6000 Y = 10702,935 – 0,452 X2 yes yes 0,159
22 11 FTIT7000 Y = 37687,972 – 2,283 X2 yes yes 0,265
23
24 The data in Table 3 show that two models of the dependence of the Italian stock
25 exchange indices on the number of coronavirus recovered are not statistically significant with
26 95% reliability. The value of R2 for all models does not exceed 0.5 (50%), which indicates a low
27
28 proportion of the variance explained by the models in the total price variance of the Italian stock
29 exchange indices.
30
31
32
It is worth noting that a statistically significant positive relationship is observed only in
33 the FTIT4000 index of the number of patients recovered from the coronavirus.
34
35 Table 4. Paired linear Yj models from X3
36
37
38
Significance
39 J Index Regression equation Relevance b of the R2
40 model
41 1 FTSE/MIB 40 Y = 21738,880 – 8,581 X3 yes yes 0,598
42
43
2 INVIT40 Y = 2124,039 – 0,837 X3 yes yes 0,587
44 3 FTIT1300 Y = 13081,496 – 1,099 X3 yes yes 0,083
45 4 FTIT8000 Y = 11588,542 – 5,633 X3 yes yes 0,605
46 5 FTIT4000 Y = 205796,127 – 20,612 X3 yes yes 0,118
47
48
6 FTIT2000 Y = 32126,071 – 14,099 X3 yes yes 0,655
49 7 FTIT5700 Y = 36167,853 – 19,886 X3 yes yes 0,568
50 8 FTIT0001 Y = 13720,910 – 4,540 X3 yes yes 0,387
51 9 FTIT9000 Y = 92306,624 – 32,653 X3 yes yes 0,476
52
53 10 FTIT6000 Y = 11190,487 – 2,575 X3 yes yes 0,361
54 11 FTIT7000 Y = 39944,814 – 12,444 X3 yes yes 0,551
55
56
57 All paired linear models of the dependence of the Italian stock exchange indices on the
58
59 number of deaths are statistically significant with a 95% probability, as are the regression
60 coefficients of the models characterizing the negative relationship between the variables: an
61
62 increase in the number of deaths from coronavirus leads to a decrease in the price of the indices.
63
64
65
 Of the 33 pair linear models under study, a determination coefficient of more than 0.5,
which is optimal, was found only in 6 models characterizing the dependence of the Italian stock
1 exchange indices on the number of deaths from coronavirus (Table 4).
2
3
4 In fig. Figure 1 shows scatterplots of the most significant relationships between
5 exogenous variable X3 and endogenous variables Y1, Y2, Y4, Y6, Y7, and Y11.
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
Figure 1. Fields of correlation between the number of deaths from COVID-19 and the indices of the
40
41 Italian stock exchange
42
43 An analysis of these six models showed:
44
45
46
 The type of dependence and the Ramsey test (p-value <0.05) confirms the presence of a
47 nonlinear dependence between the signs (hyperbolic);
48  All model coefficients, including constants, are statistically significant;
49
50  The test for the normality of the distribution of residues (p-value> 0.05) shows that the
51 residues of all six models obey the normal distribution law;
52
53  Darbin-Watson statistics DW <d_L = 1.5 at α = 0.05, n = 52, and m = 1, respectively, there is
54 a positive autocorrelation of residues;
55
56  White's test for heteroskedasticity (p-value <0.05) confirmed the presence of
57 heteroskedasticity in the remains of two models: Y4 from X3, Y7 from X3.
58
59
60
61
62
63
64
65
 The economic meaning of the regression coefficients of the four models, the remains of which
are homoskedastic, is that, ceteris paribus, with an increase in the number of deaths from
1 coronavirus in Italy by 1 person:
2
3
4  decrease in the price of the FTSE / MIB 40 index by 8.581 points on average;
5  decrease in the price of the INVIT40 index by 0.837 points on average;
6
7  decrease in the price of the FTIT2000 index by 14.099 points on average;
8  FTIT7000 index price reduction by 12.444 points on average.
9
10
11
The average absolute percentage forecast error (MAPE) for the dependence of the FTSE /
12 MIB 40 index on the number of deaths was 9%, the INVIT40 index was 9.1%, the FTIT2000
13 index was 8.5%, and the FTIT7000 index was 7.5%. The average absolute percentage forecast
14
15 errors do not exceed 10%, which indicates a high accuracy of forecasting.
16
17 Thus, the dependence of the Italian stock exchange indices on the number of patients,
18 recovered and died from the coronavirus is recognized as statistically significant. The most
19
20 suitable for forecasting are the paired linear regression models of the FTSE / MIB 40, INVIT40,
21 FTIT2000, FTIT7000 stock exchange indices from the number of deaths from COVID-19 in
22
23 Italy.
24
25 9. Discussion
26
27 So, in this research, the goal was to investigate the relationship between daily total covid-19
28
29 mortality and daily total Covid-19 cases with the stock markets of Italy, where Covid-19 is
30 widely distributed. Accordingly, an economic and mathematical model was used that considers
31 the dependence and strength of the relationship between virus-related mortality and stock market
32
33 indicators.
34
35 While the existence of a relationship is found between the daily total death rate from Covid-
36
19 and the entire Italian stock market, a relationship was also found between the daily total death
37
38 rate and some stock indicators in particular. Accordingly, the increase in population mortality
39 affects all investors, while the hearing of the case, but the absence of death did not affect some
40
41 stock markets in some countries. Given that stock markets do not act according to the efficient
42 market hypothesis and tend to follow behavioral financial theories, it is clear that investors in the
43
Italian stock markets are not psychologically affected by the implementation of cases. From the
44
45 results of this study, it is clear that investors have started to suffer from deaths in Italy, and these
46 trends will continue while the Italian population continues to die from the virus.
47
48
49
A careful study of the results shows that the dates of structural changes in the Italian stock
50 market coincided with the beginning of March 2020, when the effect of the Covid-19 virus
51 began to be seriously felt in Italy. During these dates, there is a significant increase in the
52
53 number of people who died from Cavid-19, and this situation is considered in the results of this
54 analysis as a structural gap that confirms the hypothesis of the study.
55
56 Based on the data obtained, it becomes clear that the country's stock market, studied through
57
58 the indicator covid-19 daily total death, shows a high level of dependence on mortality by
59 coronavirus. On the other hand, it is understood that there is a long-term relationship between the
60
61 covid-19 daily total case and the Italian stock market. This was confirmed by calculations using
62
63
64
65
 an econometric model, according to which the research hypothesis was confirmed that the
number of deaths from coronavirus is statistically significantly interconnected with all key
1 Italian stock exchange indices: in particular, the price of FTIT1300 index depends only on the
2
3 number of deaths, but not on the number of sick and recovered , unlike the indexes FTSE / MIB
4 40, INVIT40, FTIT8000, FTIT2000, FTIT5700, FTIT0001, FTIT6000, FTIT7000. The highest
5
6 dependence on the number of patients with COVID-19 is observed for the FTIT8000 index. The
7 pairwise linear regression models of the stock exchange indices most suitable for forecasting
8 were also identified - namely: FTSE / MIB 40, INVIT40, FTIT2000, FTIT7000 of the number of
9
10 deaths from COVID-19 in Italy. These models can be used in further research and in building
11 forecasts for the development of the stock market.
12
13
14
Thus, in this study of econometrics, it is possible to identify the direction of relationships and
15 cause-and-effect relationships between the variables considered.
16
17 As a result, the severe economic losses suffered due to the pandemic in Italy indicate that
18
19 with the end of Covid-19, world monetary and commodity flows will be redistributed and world
20 trade will give new signals of movement. So, the research hypothesis put forward at the initial
21 stage was confirmed.
22
23
24 10. Conclusions and Suggestions
25
26 Therefore, given that the number of Covid-19 cases and the number of deaths increased day
27 by day in line with the results, it is clear that investing in the stock market is not the right option
28
29 for investors. The fact that this is one of the new studies that reveals the relationship between the
30 death rate of an individual country from Covid-19 and stock markets with empirical findings
31
32 reveals the original side of the article. However, the fact that the study is based on limited data
33 does not provide clear conclusions about what results will occur in the future.
34
35 The results, which will be obtained with a wider dissemination of data, will reveal the
36
37 possible consequences of the pandemic for stock markets and the economy with clearer
38 conclusions. However, the fact that macroeconomic variables such as GDP, trade openness, and
39
40
unemployment are not measured at daily frequencies does not yet allow empirical research to
41 identify the relationship between these variables and Covid-19. If the pandemic continues, future
42 research with a new model that takes these variables into account will present important
43
44 economic conclusions to policy makers. Therefore, this study is also very useful for researchers,
45 economists and political scientists who study the consequences and impact of Covid-19.
46
47 In addition, the results of this research are of great interest to investors. So, for this group of
48
49 users, you can develop specific recommendations and suggestions for investing. Investing in
50 gold markets, which are seen as a safe haven in all financial markets, can be seen as a logical
51
52 choice for investors. With the increasing spread of Covid-19, all business life has started to work
53 on the Internet, and this process may gradually expand, cryptocurrencies such as bitcoin, the
54 most widely used cryptocurrency in the world, can be considered as another financial tool for
55
56 investment. In addition, to minimize the risk, turning to derivative products will also be one of
57 the right options. Another correct investment option in this extraordinary situation would be to
58
59 turn to country markets where Covid-19 cases are relatively low.
60
61
62
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65
 It is necessary to note the importance of the results of this study for public authorities and
financial regulation. Based on the results of the study, they can be recommended such measures
1 as: stimulating local companies, diversifying the economy, flexible exchange rate regime, in
2
3 order to improve the situation in the financial market and attract more investors to the Italian
4 stock exchange.
5
6
7
Further research may recommend the construction of more complex econometric models to
8 assess the impact of coronavirus morbidity and mortality rates, as well as the development of
9 prognostic models to assess the future impact of COVID-19 morbidity and mortality on the
10
11 development of the stock exchange. In this case, the pair linear models of regression of stock
12 exchange indices most suitable for forecasting that were identified during this study can be used:
13
14
namely, FTSE / MIB 40, INVIT40, FTIT2000, FTIT7000 of the number of deaths from COVID-
15 19 in Italy.
16
17
18
19
20
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