Role of Global Uncertainty: Evidence from COVID-19 Pandemic

27 Pages Posted: 16 Dec 2020 Last revised: 22 Feb 2021

Date Written: December 15, 2020


This paper investigates the role of global uncertainty, measured as VIX or common stock market volatility across a wide range of countries, on global financial asset prices after the outbreak of COVID-19 pandemic. I estimate a factor-augmented vector autoregression model that consists of multiple financial variables, based on daily frequency, where global uncertainty shocks are identified through recursive restriction. I report three main results. First, the global uncertainty shock has played a key role in the developments in financial asset prices and oil prices, explaining over a third of total variations in the variables. Second, in line with the findings in earlier studies, the uncertainty shocks are in nature global demand shocks; the shocks were associated with significant decline in global stock prices, implied inflation, interest rates, and oil prices. Third, the results further suggest that the negative impact uncertainty shocks induced by the pandemic seem to be two to four times as sizeable as whit is assessed based on data before the outbreak of COVID-19. Finally, the results are robust to alternative identification strategies, alternative data transformation, and alternative measures of financial asset prices.

Keywords: Global Financial Uncertainty; Equity Price; Implied Inflation; Oil Price; Interest Rate; COVID-19; FAVAR

JEL Classification: E32, F20, F42

Suggested Citation

Ha, Jongrim, Role of Global Uncertainty: Evidence from COVID-19 Pandemic (December 15, 2020). Available at SSRN: or

Jongrim Ha (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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