COVID-19 Infection Data, Policy Interventions or Sentiment; What Explains International Stock Returns and Volatility?

34 Pages Posted: 12 Jan 2021

See all articles by Nader Virk

Nader Virk

Swansea University School of Management; Hanken School of Economics - Department of Finance and Statistics; University of Plymouth; Hanken School of Economics

Date Written: July 5, 2020

Abstract

We examine the impact of COVID-19 (C-19) pandemic on global equity markets by constructing novel infection indices. Our results show that the impact of prompt and large-scale policy interventions is ambiguous yet statistically significant. However, in this equivocality, the impact of global measures of policy interventions is more pronounced than local counterparts. Furthermore, despite the significant connection between variables describing fundamental infection data and equity market changes, we conclude that equity markets have decoupled from adverse impacts of C-19 mortality and morbidity data since the announcement of the pandemic by the WHO. Finally, the most compelling finding of our work is that changes in international equity markets are best predicted by the changes in the sentiment for C-19 infections. This prediction remains significant even if we account for local and global infection data and policy variables as well as control variables that capture changes in the post-pandemic sample.

Keywords: COVID-19 pandemic, policy interventions, infection fundamentals, infection sentiments

JEL Classification: G10, G14, G15, G18, G40, H12

Suggested Citation

Virk, Nader, COVID-19 Infection Data, Policy Interventions or Sentiment; What Explains International Stock Returns and Volatility? (July 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705323 or http://dx.doi.org/10.2139/ssrn.3705323

Nader Virk (Contact Author)

Swansea University School of Management ( email )

Haldane Building
Singleton Park
Swansea, SA2 8PP
United Kingdom

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki
Finland

University of Plymouth ( email )

Drake Circus
Plymouth, Devon PL48AA
United Kingdom

Hanken School of Economics ( email )

P.O. Box 479
Helsinki, Helsinki 00101
Finland

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