The behaviour of financial markets during COVID-19
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2021-08-13
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en
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Abstract
What is the effect of a growth in the number of confirmed COVID-19 cases on the stock
returns in a country? To answer that question this research investigates the behaviour of
stock markets, in relation with the daily growth in the number of confirmed COVID-19 cases
in 55 countries during the pandemic. The model is estimated on a sample of high-frequency
daily panel data over the period 1/1/2020 to 23/04/2021. To ensure that the effect of
interest is not affected by other factors, I control for a number of variables related to news
coverage, government interventions, culture, and a number of key asset pricing factors. The
results indicate that, in line with the hypothesis, a growth in the number of confirmed
COVID-19 cases has a negative effect on stock returns in a country. The results show that on
a day with a growth rate in the number of infections of 22,31% (median growth rate, when
the growth rate is above zero) the index return is -0,0057% instead of 0,0179% (mean index
return).The robustness analysis shows that this effect holds during periods with a peak in
the number of infections, but not during periods with fewer infections. Furthermore, the
effect of an increase in the daily growth rate is twice as strong in Europe than in the rest of
the world.
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Faculteit der Managementwetenschappen