The Brazilian Financial Market Reaction to COVID-19: A Wavelet Analysis
26 Pages Posted: 18 Mar 2021 Last revised: 31 May 2022
Date Written: March 15, 2021
We study the Brazilian stock market response to the COVID-19 pandemic. Considering the COVID-19 data from January 22, 2020, to August 31, 2021, and a daily dataset comprised of the Bovespa index - the main performance indicator of the stocks in the Brazilian capital market -, its sector components, and COVID-19 cases and deaths in the most affected countries, we employ the wavelet tools of partial coherences, partial phase differences, dissimilarities, and VaR ratio.We find significant partial coherence spots, decrease in dissimilarity, and increase in VaR ratio suggesting the Brazilian stock market responded forcefully to COVID-19 local and international data and that this response varies over time and frequencies being modulated by the local stage of outbreak. The
results also suggest a higher response to deaths data and that both market wide response and the sector contagion are more evident on longer term frequencies.
Keywords: Brazilian stock market, COVID-19 impacts, Lead-lag conditional relationships, Time-frequency domain, Wavelets
JEL Classification: G12, C63, H12, O16
Suggested Citation: Suggested Citation