The COVID-19 pandemic and ethical stock markets: further evidence of moral shock

The aim of this study is twofold. First, we assess the evolution of stock returns for two classes of ethical investments-Islamic and sustainable funds-from September 2001-January 2021. This is the first study of the financial performance of ethical investments in a period covering technological (the dot-com bubble in 2000), financial (the 2008 financial crisis), and healthcare shocks (the COVID-19). Second, we analyze the dynamics of the financial returns of conventional and ethical ethnic markets in the COVID-19 context and model the impact of COVID-19 news. We perform different time-varying tests to apprehend market reactions to the COVID-19 pandemic. We present two interesting results. First, the COVID-19 pandemic has had a time-varying impact on the stock market. Basically, a close to zero effect at the early stage of the pandemic, followed by a negative and significant effect during the first wave from March 2020 to June 2020, was observed. However, this has since been attenuated owing to social restriction measures, teleworking, government stimulus policies, and massive vaccine rollouts. Second, among all markets, the Islamic stock market is the most resilient and least impacted by the pandemic, suggesting evidence of a new moral shock.