Do Economic Surprises Explain Returns of Stocks: The Case of COVID-19 Pandemic

13 Pages Posted: 14 Jun 2021

See all articles by Amine Ben Amar

Amine Ben Amar

International University of Rabat - Rabat Business School

Hela Mzoughi

University of Tunis Carthage-Carthage Business School; ISG Sousse

Khaled Guesmi

PSB Paris School of Business - Center of Research for Energy and Climate Change

Date Written: June 3, 2021

Abstract

This paper proposes a new measure of epidemic uncertainty combining three dimensions related to the SARS-CoV-2 disease ‒ (i) the total COVID-19 confirmed cases, (ii) the total COVID-19 confirmed deaths and (iii) the total COVID-19 recovered cases ‒ to show how financial and macroeconomic variables respond to epidemic risk. Using the cross-wavelet coherence, we investigate the relationship between the American and European stock markets and three measures of uncertainty (financial, economic, and epidemic) in the time-frequency domain. Our empirical analysis confirms the close out-of-phase link between financial uncertainty and markets, and suggests that the impact of the epidemic uncertainty, on both the U.S. and European stock markets, exhibit different patterns over time and across frequencies.

Keywords: Epidemic uncertainty, financial uncertainty, economic uncertainty, stock markets

JEL Classification: G15, I19

Suggested Citation

Ben Amar, Amine and Mzoughi, Hela and Guesmi, Khaled, Do Economic Surprises Explain Returns of Stocks: The Case of COVID-19 Pandemic (June 3, 2021). Available at SSRN: https://ssrn.com/abstract=3859434 or http://dx.doi.org/10.2139/ssrn.3859434

Amine Ben Amar (Contact Author)

International University of Rabat - Rabat Business School ( email )

Technopolis Rabat-Shore Rocade Rabat-Salé
Rabat, 11103
Morocco

Hela Mzoughi

University of Tunis Carthage-Carthage Business School ( email )

Avenu Fattouma Bourguiba la soukra
La Soukra, Ariana 2036
Tunisia

ISG Sousse ( email )

Sousse
Tunisia

Khaled Guesmi

PSB Paris School of Business - Center of Research for Energy and Climate Change ( email )

France

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