Introduction:
The emergence of Covid-19 has created a significant challenge for all human sciences and global enterprises, especially stock markets. The nature of covid-19 has caused many economies to face increasing levels of financial contagion, widespread unemployment and declining profits of various industries in the world. Many industries were shutting down due to mandatory stay-at-home policies imposed by trading countries. The global value chain has been severely disrupted as a result of relying on intermediate goods from countries with extensive international trade. The critical role of stock markets as one of the most central financial tools that is monitored by economists and policy makers to investigate economic development, trade and fundraising for development in a country cannot be underestimated. Stock indices are among the most accurate asset indices in the economy because these indices are very sensitive to economic conditions. The financial market of any country is to be considered as a benchmark of its economic strength. According to the literature there are several factors, including social, economic, and political factors, that can influence the working performance of the equity market. Investigating the statistical link and dynamics of stock fluctuations and market trends in Shanghai Stock Exchange Composite Index (SSEI) and Overall Index of Tehran Stock Exchange before and during the Covid-19 pandemic is worth studying to determine the pattern of fluctuations and market performance. The current performance and fluctuations of the two financial markets are the most important reasons to investigate the causality between the index of stock markets of the two developing countries before and during the Covid-19 pandemic.
 Methodolog:
The purpose of this paper is to evaluate stock indices as a leading indicator of economic activity. The notion of "Granger causality" is used in this project to estimate relationships between stock indices and the Covid-19 pandemic. Since Iran's economy is affected by various global factors such as world commodity prices and has shown a significant relation with China's economy and export prices, the Granger causality is used to investigate the relationship between the Overall Index of the Tehran Stock Exchange and Shanghai Stock Exchange Compsite Index (SSEI) before the outbreak of the Covid-19 pandemic and during it. In addition, this paper examines the direction of causality by adopting the Toda-Yamamoto procedure of Granger Causality test in the VAR model. To run any appropriate econometrics techniques on the considered data series, we first have to check for the presence of a unit root in the data series. If we have deduced the presence of a unit root then the second objective is the transformation of the data series into a stationary data series. The data should be stationary; therefore, we used the augmented Dickey and Fuller method (1979, 1981), which is an extensively used method.
 Results and Discussion:
The results ascertained from the Granger Causality indicate that there is no causality between the Shanghai Stock Exchange Compsite Index (SSEI) and the Tehran Stock Exchange Overall Index (TSEOI) and vice versa before the pandemic. According to results, SSEI does not Granger cause TSEOI, and TSEOI does not granger cause SSEI. This implies no causal relationship between the SSEI and TSEOI, which indicates a bi-directional non-causation. The effect is that SSEI cannot be used to predict the future values of the TSEOI, and also, TSEOI is not important in measuring the Composite Index of SSE. Thus, SSEI does not influence the pattern of the TSEOI and vice versa. After the outbreak and the official statement of the World Health Organization, the results showed that there was a one-directional Granger causality between the two markets’ indices. The Shanghai Stock Exchange Composite Index is the cause of the Tehran Stock Exchange Overall Index in the post-pandemic period.
Conclusion:
This study helps participants at the Shanghai Stock Exchange and Tehran Stock Exchange to ascertain the impact of volatility transmission amid unforeseen conditions such as Covid-19 and other periods of financial contagion, which creates the transmission of risks from one market to another in this context. For example, we can mention the change in oil prices during the pandemic. Since Iran's economy is dependent on oil, disturbance in this market can cause changes in other Iranian markets. Considering the performance of the two stock markets, which was a reflection of an unexpected event and generally led to economic and global fluctuations, this performance can be compared to the financial contagion of the 2007/2008 American crisis. Covid-19 had a huge impact on countries, especially developing countries. This has led to countries having more economic relations with each other having a double effect on each other's economies during the pandemic.