COVID-19 pandemic impact on investment prospective in selected CEE stock markets: A stochastic dominance approach

Abstract The COVID-19 pandemic and its impact on the stock markets in the Central and East European (CEE) countries have been investigated in many papers, but mostly from the perspective of the market connectedness and the spillovers. None of the existing researches addressed the potential changes in the investors’ utility in a certain market caused by the pandemics. Therefore, this paper compares investors’ prospective in the periods before and during the pandemics in the selected CEE markets in terms of their utility and provides a new aspect to this research field. The analysis includes Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Serbia. By using the first two degrees of the stochastic dominance (SD) criteria, market returns before and during the pandemics are compared in order to find dominant (efficient) investment alternative for all investors who prefer greater return and smaller variance (risk averters). This procedure is executed within a certain market and between different markets in these two periods. The results indicate that there is no dominance between pre-pandemic and pandemic returns for all CEE markets when the whole distribution is observed, indicating that the markets generally recuperated in the mid-run. The dominance relations can be found only in the trimmed series. Moreover, it is possible to find CEE markets which dominate over some other, in both pre-pandemic and pandemic period, representing a better investment opportunity for all risk averters.