Impacts of the pandemics (excluding Covid-19) on stock prices with reference to USA, Brazil, India, Australia, and Malaysia
1.1 Introduction
The aim of the current study is to investigate the impacts of pandemics on stock prices with reference to USA, Brazil, India, Australia, and Malaysia. This chapter presents the background to the study, problem statement, research objectives, research questions, theoretical framework, research hypothesis, as well as the significance of study.
1.2 Research Background
The previous works on pandemics have demonstrated the potential economic impacts (e.g. Fan, 2003; James & Sargent 2006; Chou et al., 2004). These impacts according to Verikios et al. (2011) include: reduction in the consumption by the households on tourism products; high retail and transportation spending; school closures; increased employee absence from their workplaces because of illnesses or for prophylaxis; and increased demands for essential medical services. Due to global change, the levels at which major pandemics occur has significantly increased.
MacKellar (2007) classifies the economic impacts of the pandemics into direct and indirect. The direct impacts that are widely studied include the lost days of work, hospital costs, and the costs of the medical expenses, among others. For instance, Meltzer, Cox, and Fukuda (1999) estimated the direct of the pandemic influenza in the United States to be approximately US$100 billion, which was less than 1% of the Gross Domestic Product (GDP). MacKellar (2007) further argues that the declining tax revenues as well as the need for increased expenditure in response to the pandemic (both economic relief and health spending to the distressed industry) would lead to an increased fiscal deficit. In another scenario, the Asian Development Bank considered the Asian pandemic with a 20% attack rate and the 0.5% case-fatality rates (Bloom et al., 2005). Therefore, depending on how long the psychological shock associated with pandemic persisted, the Bank estimated an economic impact of approximately 2-7% of the GDP in the entire region. Also, the US congressional budget office (CBO 2006) estimated that, on assumption that 30% of the US workers became ill due to the pandemic, 2.5% lost their lives, and the ones who survived missed three weeks of working, then the country?s GDP would decline by 5%. On the other hand, MacKellar (2007) estimated that a mild pandemic may decline the global output by about 1%, whereas a very serious one like the influenza pandemic of 1918-20 might reduce the output by 10%.
Murray et al. (2010) claimed that morbidity and mortality would highest in the developing countries than in developed countries. However, the economic impacts in the developing countries would be particularly severe. Schultz (1967) suggested that the 1918-20 pandemic significantly led to higher output per worker within the agricultural labour force in India. However, these severe impacts directly affects households, and not an individual worker. This is because poor households often suffer immediate losses from the lost income, in addition to which they are supposed to sell their assets to care for the sick. The previous studies reveal that pandemics of illness often push families on the brink of poverty.
SARS is an essential case in understanding the economic impacts of the pandemic (MacKellar, 2007). According to the author, SARS clearly demonstrate that economic effects are not limited to the costs of healthcare and lives, and that most economic losses are caused by various psychological factors; uncertainty and fear that reduces the expectation and demand for the future (MacKellar, 2007). Also, SARS pandemic set the precedent for the involvement of the governments in both controlling the pandemic as well as mitigating the potential economic losses caused by the pandemic. The pandemic also significantly impacts on travel, tourism, as well as the tourism industry. The scenario presented by the SARS pandemic demonstrated the role played by psychological factors in the reduction of demand and impacting on the financial markets, which subsequently affects the stock prices. Specifically, the scenario presented by the SARS pandemic included the decline in short-term demand and supply, reduction in the long-term supply chain, and shrinking of the labour supply. In the severe pandemic, the healthcare system often become overwhelmed making healthcare workers to disproportionately.

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