The Brazilian Financial Market Reaction to COVID-19: A Wavelet Analysis

26 Pages Posted: 18 Mar 2021 Last revised: 31 May 2022

See all articles by Antonio Costa

Antonio Costa

Federal University of Ceara

Cristiano da Silva

Universidade do Estado do Rio Grande do Norte (UERN)

Paulo Rogério Matos

Federal University of Ceara

Date Written: March 15, 2021

Abstract

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

Costa, Antonio and da Silva, Cristiano and Matos, Paulo Rogério, The Brazilian Financial Market Reaction to COVID-19: A Wavelet Analysis (March 15, 2021). International Review of Economics & Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3805117 or http://dx.doi.org/10.2139/ssrn.3805117

Antonio Costa (Contact Author)

Federal University of Ceara ( email )

Rua Papi Júnior 1225 - Rodolfo Teófilo
Fortaleza, Ceara 60431970
Portugal

Cristiano Da Silva

Universidade do Estado do Rio Grande do Norte (UERN) ( email )

Assu - State of Rio Grande do Norte
Mossoró, 59610-210
Brazil

Paulo Rogério Matos

Federal University of Ceara ( email )

Rua Papi Júnior 1225 - Rodolfo Teófilo
Fortaleza, Ceara 60431970
Portugal

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