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Amazon Stock Market Risks During COVID-19 Crisis

By Ignatius Makutwa Shitanda

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Abstract

Financial crises, market risks and economic deterioration have different causes. Regardless of

their causes, they significantly impact companies and industries. One of the leading causes of

economic deterioration is the frequent health pandemics in society today. One such example was

the spread of COVID-19 in 2020. The economic impacts of COVIDS-19 have been receiving

enormous attention recently. Market risks and uncertainties have been the center of discussion as

they advise investment decision-making and any other aspects requiring market performance.

There are numerous methods used to analyze market performance and establishing future market

risks. Analyzing the bonds, returns, and gold values related to the stock performance of Amazon

has the potential of presenting the analytical parameters for the company’s performance. This

report presents a detailed analysis of the stock market performance of Amazon during the

COVID-19 era and the 2008 financial crisis. The analysis shows that the company’s stock

market performance is affected differently by the financial crisis in society due to some market

and corporate-specific elements. Therefore, this report presents all the needed analysis for the

market analysis, presenting the market risks level due to the COVID-19 economic impacts.
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Table of Contents

Abstract............................................................................................................................................2

1.0 Amazon's Stock Market Risks...................................................................................................4

1.1 Introduction................................................................................................................................4

1.1.2 Background Information.........................................................................................................5

1.2 Expected Elements or Components...........................................................................................7

1.3 Descriptive Statistics...............................................................................................................12

1.4 Empirical Results.....................................................................................................................17

1.5 Conclusion...............................................................................................................................20

References......................................................................................................................................22
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1.0 Amazon's Stock Market Risks

1.1 Introduction

Economic performance has been a center of discussion since time immemorial. Economic

performance concepts are vital for most societal facets, including the corporate world. Strategic

planning in companies has to acknowledge the importance of economic concepts. In general,

economic concepts explain most aspects affecting corporate performance. Diverse economic

concepts and theories exist today, most of them attempting to explain market trends.

Nevertheless, economic theories and concepts are based on the assumption that both the

consumers and investors rational in nature and make the best economic decisions for themselves.

Furthermore, investment endeavors are always more complex and require detailed information

(Levy et al., 2000).

The stock markets are often complex and dependent on diverse aspects of society. The

stock market's Risk is one of the significant aspects of consideration when analyzing stock

performance. Raza et al. (2014) argued that the risks of stock markets are a crucial element of

determining stock performance. As a result, investors consider the stock risks as a central aspect

of investment decision-making. On the other hand, the rate of market stock risk is dependent on

some other elements in society. Societal elements affecting economic performance affect the

stock market risks. For instance, the COVID-19 pandemic greatly affected the global economy in

general. Companies and markets' stock prices and performance were therefore affected

consequently. Stock performance is mainly used to determine the best company for investment.

As a result, investors use different concepts and elements to calculate the validity of their

investment.
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First and foremost, companies were affected differently during the COVID-19 health

pandemic that commenced on December 1, 2019. Amazon is one of the major US stock

companies affected by the health pandemic. The volatility of the company's stocks during the

COVID-19 era reflects the pandemic's impacts on the online shopping market worldwide.

Amazon is one of the most preferred online companies in society today (Ibis et al., 2021). It has

therefore been one of the best-performing stocks during the pre-COVID-19 era. This report,

therefore, uses Amazon's stock market performance before and during the COVID-19 period to

present the economic impacts of COVID-19, especially in the stock markets. This report majorly

uses different calculations and analysis models to show the stock market risks of Amazon caused

by the COVID-19 pandemic. By so doing, this essay will present the importance of relevant

economic theories when analyzing corporate performance.

1.1.2 Background Information

Market risks and associated concepts have been receiving enormous attention recently.

Increased market risks are associated with the financial crisis in society. On the other hand,

effective market risk management is always vital during a financial crisis. There have been

several economic issues causing increased risks to the global markets since 2000. The Financial

crisis of 2015 affected different companies in society, especially in the banking sector (Trenca et

al., 2015).

On the other hand, financial crises in modern-day society have different causative agents.

Madhav et al. (2017) argued that the modern globalization concepts and implementation in

society had made cross-border movements familiar, thus increasing the risks of health

pandemics. On the other hand, these pandemics always have enormous impacts on the
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economies of the affected countries. As a result, the impacts of health pandemics have been

receiving enormous attention since time immemorial.

Past examples have shown that financial crisis generally affects corporate performance

regardless of their causes. Claessens and Kose (2013) outlined that there have been several

financial crises in the past. These crises have had different elements and causes in the past.

Regardless of the causes, past financial crises are characterized by sharp credit and asset markets'

fluctuations, thus market risks. For instance, from 2007 to 2009, the global financial crisis

affected most companies and markets globally.

On the other hand, the 2019 – 2020 financial crisis caused by the spread of COVID-19 is

also a viable example of financial crises that affected market and corporate performance. As a

result, strategies for overcoming the impacts of financial crises became a center of discussion.

Researchers and specialists have therefore developed the best models and theories of establishing

the impacts of financial crises. Generally, there are numerous methods of analyzing the COVID-

19 corporate impacts.

Determining the impacts of COVID-19 is a complicated endeavor requiring detailed

analysis and calculations of some major corporate sectors. The corporate impacts of the financial

crisis are dependent on the company's industry and the relevant financial aspects in the company.

As a result, company-specific data is fundamental in assessing the impacts of COVID-19 in

Amazon. Some of the data used in this analysis for establishing Amazon's market risk during the

COVID-19 pandemic include the face interest rates, market interest rates, face value, interest

payment frequency, and maturity. On the other hand, this analysis analyzes stock as the most

crucial element for investment, thus reflecting corporate performance. However, gold provides

better haven properties than stock performance. This analysis also analyzes the gold data as it is
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vital for market risk analysis, especially with the impacts of COVID-19 (Salisu et al., 2021).

Lastly, the current analysis focuses on the bonds of Amazon as they reflect the company's fixed

income.

1.2 Expected Elements or Components

Market risks and other performance elements of companies are analyzed using diverse

methods that note all the market-relevant aspects. This part covers primary analyses for the

performance of Amazon before and during the COVID-19 pandemic financial crisis. Face value,

face interest rate, Interest payment frequency, market interest rate, and maturity are critical

components of bonds. The interest rate is the most important since bonds have two principal

risks: interest rate risk and the other is credit risk. The principal analysis here is interest rate risk.

Duration is a vital indicator for measuring interest rate risk, calculating the remaining weighted

maturity to measure the sensitivity of interest rates between different bonds. Because the

duration can reflect the average recovery time of the investor's bond investment cash flow, the

bond portfolio leverage can be well managed by managing the bond duration. The present value

of the bond, that is, the daily closing price, is constantly changing, so the yield to maturity is

constantly changing. First, this analysis will use Value at Risk (VaR) as the most reliable and

well-known statistical model for market risk quantification.

The VaR is one of the significant methods of analyzing the market risk associated with

the performance of Amazon during the 2008 financial crisis as well as the 2020 financial crisis

caused by the spread of COVID-19. The current investment portfolio focuses on the Gold prices

and the company's stock to determine the risks of and investment into Amazon. The VaR of the

current Portfolio is developed by the standard deviation, an average of the company's stock

performance, and the VaR for 90, 95, and 99 confidence levels. ¸ using this analysis will
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significantly influence performance in general. Therefore, this analysis focuses on the impact of

uncertainty on the prices of 19 commodities in the four categories of energy, precious metals,

agricultural products, and industrial metals. They found that macroeconomic uncertainty hurts

commodity prices. In particular, precious metals like gold are less affected by uncertainty.

Energy commodities are more sensitive to short-term macroeconomic uncertainty, and industrial

metals are more sensitive to long-term macroeconomic uncertainty. Using EPU as a proxy

variable of policy uncertainty in a general equilibrium model, the increase in policy uncertainty

makes the stock market more volatile and the correlation between different stocks stronger (Pstor

& Veronesi, 2012). Generally, using these aspects significantly affects the analysis of the stock

performance of Amazon and Gold, which are the primary elements used in developing the risk

elements associated with a market investment.

The formula used for calculating VaR, in this case, is as follows:

Value at Risk of the Portfolio analyzed = [Portfolio's expected Weighted Return − (z-

score of the confidence interval's z-score × Portfolio's standard Deviation)] × portfolio value

This analysis presents the Portfolio's value using the above formula. In general, the

Value at Risk presents the normal distribution of the past losses of Amazon during the 2008

financial crisis and the 2020 COVID-19 economic impacts. The following part presents the VaR

calculations of Amazon's, thus presenting the reliability of the Portfolio. From the calculations of

VaR of an investment portfolio measured at returns of 5 days, the VaR value is 7922877432. On

the other hand, this VaR analysis assumed that the Portfolio was worth 1000000. Therefore, it is

well documented that the VaR of the company is high during the COVID-19 period. This means

that the risk is lower and investment into Amazon during the Financial crisis of 2020. From all

the above aspects, Amazon is one of the companies that had chances of developing and
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performing better in the harsh economic conditions brought forth by the spread of COVID-19.

Generally, this analysis shows that an investment in the company has more chances of

performing better in the coming days.

Past studies have shown that the economic impacts of health pandemics such as COVID-

19 affect the societal sectors differently. Like most of the other companies, Amazon has also

been affected significantly by this pandemic. However, the economic conditions caused by the

spread of COVID-19 had different impacts on Amazon compared to the other companies. First

and foremost, Amazon is an international company and therefore operates in different regions

worldwide. Therefore, country or region impacts of COVID-19 are a significant determinant of

the pandemic's impacts on Amazon. Generally, Amazon's stock market had different patterns

before and after COVID-19. The analysis of Gold and Amazon's performance shows that the

company had performance fluctuations in general. The Figure below presents the company's

stock performance before December 1, 2019, and the period after this date into 2020. The Figure

below presents the VaR of the investment at a 99 percent confidence level.

2017, 2018 and Early 2019 Gold and Amazon's Stock Performance.
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Gold and Amazon Stock Values

1788.79759825328
1644.19275303644
2000
1267.85344129555 1384.21310043668
1500 967.350441767068
1000
Rates

500

0
2017 2018 2019
-500
-1000
-1500 -1257.740562249

Years

Gold Values Amazon Values

From the above graph, it is well established that the Gold and Amazon stock rates and

performance have been performing well since 2017. First and foremost, Gold prices in the stock

market are significant in determining the market risks. As a result, companies broadly use these

values to determine the performance of companies in stock markets. The figure below presents

the gold and Amazon values after 01-December 2019 when COVID-19 was first heard of in the

world:
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Stock Performamce after COVID-19

3220.6297826087
3500 2676.84585657371
3000
2500
Stock Values

1785.601 1772.70398406374 1786.98913043478

2000 1479.94
1500
1000
500
0
43800 2020 2021
Year Period

Gold Values Amazon Values

Despite the COVID-19 Pandemic, Amazon’s performance in the stock market increased

significantly. In fact, from the above tables, it is well documented that the stock values, both the

company’s socks and those associated with the Gold stocks, increased significantly after the

spread of COVID-19. This aspect reflects some major economic elements. Defining the reasons

for this pattern requires a performance analysis of the 2008 financial crisis. Kenton (2021)

argued that the 2008 financial crisis started in 2007 and ended in 2008. The table below presents

Amazon’s and Gold stock values during and after this crisis:
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2008 Financial Crisis Stock Performance

972.8292
1000 871.003212851406
900
800 696.453225806452
700 604.036290322581
600
445.271774193549
Values

409.520481927711
500
400
300
200 70.1294377510041
67.0673790322581 86.89924
43.5468273092369
39.9428225806451
35.8522983870968
100
0
2004 2005 2006 2007 2008 2009

Years

Gold Values Amazon Values

From the above figure, the company stock was also performing well before the 2008

financial crisis. The performance also increased even through 2008 when most companies were

affected during the financial crisis. Therefore, from the above tables, the Gold and Amazon

stock’s performance have not been experiencing negative performance during the financial crises

in society. This is due to some significant economic elements and concepts in general. Therefore,

from the above aspects, it is well documented that the performance of Amazon during the 2008

financial crisis and the spread of COVID-19 does not reflect some harsh impacts, especially to

the company’s stock market values. In general, Gold and Amazon’s market stock prices

consistently increased during the health pandemics.

1.3 Descriptive Statistics

In general, the analysis of Amazon’s performance shows that the company has been one

of the best performers in the stock market. The figure below presents the progression of the

company’s stock performance since 2000 from the fundamental data analysis:
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Generally, the above figure presents that Amazon has been increasing in performance

since 2000. This is due to some major company and market elements. The unconditional and

dynamic conditional correlations calculations obtained from the gold and Amazon historical

stock values present performance trends in general. The table below presents these aspects:
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Gold Unconditional Correlation

2500

2000

1500
Price

1000

500

0
5 258 511 764 10171270152317762029228225352788304132943547380040534306455948125065
Period

gold Gold Unconditional Correlation

The above table presents the gold’s unconditional correlation. This is one of the

significant aspects of consideration as it determines the ability of the stock to attract returns in

the coming days. The table below also presents the unconditional correlation of Amazon’s stock

values since 2000.

Amazon Unconditional Correlation

4000
3500
3000
2500
Price

2000
1500
1000
500
0
5 291 577 863 11491435172120072293257928653151343737234009429545814867
Period

amzn Amazon Unconditional Correlation

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The above figure shows that the risks of Amazon’s stock reduce as the stock prices keep

rising in the market. Therefore, this presents that the company increases its performance across

the years. On the other hand, recent data shows that Amazon’s returns have been increasing

rapidly recently, and they are likely to continue increasing despite the economic impacts of

COVID-19. Therefore, while most companies’ stock values were affected by the poor financial

conditions in 2008 and 2020, Amazon was positively influenced, especially in 2020. Historical

data show that the company’s performance was not affected by the financial crisis in 2008.

However, Amazon’s performance was positively influenced by the COVID-19 economic

impacts in 2020. These outcomes are due to the market aspects. 2020 financial crisis boosted

technological development and tools, thus an elevated performance. Furthermore, variance,

standard deviation, Kurtosis, and skewness are other aspects used in determining stock

performance.

Generally, data from the company’s stock values show that the company was not affected

by both two periods in general. Based on relevant formulas, the following table presents the

standard deviation, variance, skewness, Kurtosis, and covariance of the stock data of Gold and

amazon from 2017 to 2021, thus presenting the stock performance during the spread of COVID-

19.

Gold Amazon

Standard Deviation 241.1073651 766.4887718

Variance 58132.76151 587505.0373

Skewness 0.776874059 0.585415818

Kurtosis -0.856757596 -0.684192933

Covariance 163940.5916 586965.0511

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From the above data, it is well documented that the stock performance of Amazon and

Gold prices in the stock market was positively influenced during the spread of COVID-19. On

the other hand, studies have shown that companies were significantly affected by the virus.

However, some primary reasons specific to the market and the situation posed by the virus were

favored by Amazon's operations.

Changing the activity of transactions and the information environment will cause the

equity structure to impact liquidity (Brockman et al., 2008). If there are many insiders in the

holding body, inside information will affect information asymmetry, and ordinary investors will

consider the cost of adverse selection, thereby affecting market liquidity. Therefore, equity

diversification is conducive to market liquidity. This report presents a detailed analysis of the

available data of the stock performance of Amazon in general. By analyzing the bonds, stock,

and gold prices, this report presents most of the stock performance aspects of the company, thus

showing the risk associated with future investments in the company. From the returns, bonds,

and gold prices, Amazon has been one of the best-performing companies in the technology

industry. Furthermore, the company is the least affected, and the investors gain returns on

investments (ROI) even when there are financial crises in the global market. Some significant

aspects present volatility of the stock of Amazon, thus showing the market risks of the stock.

This analysis presents the gold and Amazon's stock performance in the global and USA

markets. Price-to-earnings ratio, dividend yield, and benchmark are essential components that

affect stock valuation. The volatility method uses the degree of deviation of the return of a

security asset from its average value to describe the risk of the asset. The variance is used to
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represent the risk of the stock, and the Delta and Gamma parameters can measure the risk

sensitivity of the stock. The value of ordinary shares refers to the present value of all future cash

flows dividends） that ordinary shares are expected to provide. Therefore, the dividend policy of

a company is significant to its stock. If the investor holds for a limited period, it is similar to the

calculation of bond value. However, the dividend policy will be affected by market interest rates.

When interest rates in the financial market drop, companies generally adopt a high dividend

payout policy. Information asymmetry will affect equity structure and liquidity.

1.4 Empirical Results

The harsh economic impacts of COVID-19 have been receiving enormous attention

recently. Different sources have argued that health pandemics always have enormous effects on

economic elements. In general, the performance of Amazon during the COVID-19 pandemic and

the 2008 financial crisis was affected by the company's industry and products. Verschuur et al.

(2021) argued that COVID-19 is a highly contagious disease that led to the loss of many lives in

most parts of the world. As a result, governments and individuals emphasized implementing

measures that restricted movements and focused on social distancing in general. This aspect led

to the lockdown in most global parts, and companies had to close temporarily until the pandemic

issue was solved. Therefore, the imposed measures led to a halt in the global economies as most

economic activities could not proceed. From this element, companies were affected depending

on how much their returns depended on the social activities (Walmsley et al., 2020).

From the above element, some companies were significantly affected in general.

However, the spread of COVID-19 positively affected Amazon. First and foremost, Amazon's

performance in the global market emphasizes the concept of online services. Online services
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require minimum inter-personal contact in general. This means that the operations of Amazon

were not significantly affected as compared to other companies around the world.

On the other hand, Amazon gained more customers as people mainly looked for places to

get services from their homes and minimize interpersonal contacts (Ibis et al., 2021). This

analysis also presents the 2008 company performance in the global stock markets. It is well

documented that the company was also not affected by this pandemic as it belonged in one of the

best performing and fastest developing industries.

Cook and Page (1987) argued that returns on investments, primary demand, and the risks

of investments are vital elements for market risk analysis. Therefore, the level of volatility that

an asset possesses is one of the significant elements of consideration for any investments.

Furthermore, volatility, market segment, and risks of a market are vital for the success of any

company. As a result, the stock performance presents the precise position of a company in the

market. Stock performance is crucial for investment endeavors.

On the other hand, corporate performance is affected at different rates by financial crises.

Historical data and elements of the technology industry have shown that the companies in this

industry improve in performance rapidly. Ibis et al. (2021) further presented the following table

for the performance of the Net sales and stock prices of Amazon during the COVID-19 financial

turmoil:
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The above table shows that the company’s stock values were developing in general.

Several economic theories explain market behaviors in modern-day society. These theories,

however, argue from the point of the demand and supply sides of the market. Some of the

significant economic aspects reflected in the performance of Amazon include scarcity, value,

transferability, and wealth (Kwatiah, n.d.). In general, the demand and supply sides of a market

have to market for a perfect economy. This element has been the center of Amazon’s

performance in general. In the 2008 financial crisis, technological concepts were scarce, and

therefore the company was one of the few service providers in the technological industry. During

the COVID-19 pandemic, the company had the best services that could offer services limiting

human contact. Due to the lockdowns and restricted movements, the company offered a solution

to the current market issues, thus its better performance.

Market risk calculations have been receiving enormous attention during the Financial

crisis caused by the spread of COVID-19. Stress tests and VaR are significant calculations used
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in identifying the market risks, especially during this period. From the analysis presented in this

report, company historical data provides that investment into Amazon stands a chance of

attracting returns in general. Past studies have also shown that health pandemics and financial

crises are common issues and may occur at any time. This means that investors have to ensure

that they focus on endeavors with fewer risks during such extenuating circumstances. This

analysis presents that Amazon’s stock values are rarely affected by financial crises. Historical

data shows that the company was not affected by the 2008 crisis and the 2020 COVID-19

pandemic. The main reason for such patterns of performance is the industry it belongs in and the

services that it provides. The company has a ready market, and therefore the demand is high,

thus its performance.

1.5 Conclusion

Companies have always been affected by economic performance and related aspects. The

level of various pandemics’ impact is always dependent on different aspects specific to the

market and companies in question. Amazon is a technology-based company in the USA stock

market. Amazon has been one of the best performers in the technology industry since its

inception. Historical data from the company’s stock market performance show that the gold and

stock values of the company have been gradually increasing over the years. This also presents

the fact that the company is competitive and it is in a competitive industry. The analysis

presented in this report draws that Amazon was one of the least negatively affected companies

during the COVID-19 pandemic and financial crisis in 2020 and its performance during the 2008

financial crisis. From this aspect, the analysis shows that there are slight risks associated with

investments in Amazon. The Market risk associated with an investment portfolio having the gold

and company stocks value shows that this investment has a high chance of attracting profits in
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the coming days. Therefore, this report shows that investment in Amazon is risk-free, especially

with risks associated with the financial crisis.

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