A New Index for Measuring Uncertainty Due to the COVID-19 Pandemic

Afees Salisu, Ahamuefula Ogbonna, Tirimisiyu Oloko and Idris Adediran

Sustainability, 2021, vol. 13, issue 6, 1-18

Abstract: This study contributes to the emerging literature offering alternative measures of uncertainty due to the COVID-19 pandemic. We combine both news-and macro-based trends to construct an index. The former involves the use of Google trends with plausible variants of words used to capture the pandemic, which are combined using principal components analysis to develop a news-based index. For the macro-based index, we identify global factors such as oil price, stock price, Dollar index, commodity index and gold price, and thereafter we obtain the macro-based uncertainty using variants of stochastic volatility models estimated with Bayesian techniques and using a dynamic factor model. Consequently, the new (composite) index is constructed by combining the news- and macro-based indexes using principal components analysis. Our empirical applications of the index to the stock return predictability of the countries hit worst by the pandemic confirm the superiority of the composite index over the existing news-based index in both the in-sample and out-of-sample forecast horizons. Our results are also robust to forecast horizons and competing model choices.

Keywords: COVID-19 pandemic; common correlated effects; heterogeneous panel; uncertainty (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.mdpi.com/2071-1050/13/6/3212/pdf (application/pdf)
https://www.mdpi.com/2071-1050/13/6/3212/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:13:y:2021:i:6:p:3212-:d:517131

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().