Time Scales Based Analysis of the Effects of COVID-19 Related Economic Support on the Stock Markets in Emerging Markets

Melik Kamışlı, Mustafa Özer (), Özlem Sayilir () and Patrice Racine Diallo ()
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Mustafa Özer: Faculty of Economics and Administrative Sciences, Department of Economics, Anadolu University, Eskişehir, Turkey
Özlem Sayilir: Faculty of Business Administration, Anadolu University, Eskişehir, Turkey
Patrice Racine Diallo: Institute of Social Sciences, Finance Department, Anadolu University, Eskişehir, Turkey

Journal of Central Banking Theory and Practice, 2023, vol. 12, issue 3, 41-60

Abstract: The main purpose of this study is to investigate the causal response of the stock market returns to COVID-19 related economic support in 19 emerging countries by using the Maximal Overlap Discrete Wavelet Transform (MODWT) and Fourier Toda-Yamamoto Causality Test (FTYCT). With the help of MODWT, we identify the instant, short-term, mid-term and long-term reactions of stock market returns and COVID-19 related economic support to each other. Implementing FTYCT, we determine the existence of the causal relationships running from COVID-19 related economic support to stock returns. We obtain two major results. First, the COVID-19 related economic support have significant effects on stock market returns in the short-, medium-, and long-term, except in China. Second, the results of the causality tests vary across countries based on the different time scales. Some emerging markets show an immediate reaction to the Economic Support, while most stock market reactions occur over the medium- and long-term. Since economic support will created unintended effects on stock market returns, the way that these support policies are implemented should be reconsidered. Also, their effectiveness should be evaluated carefully.

Keywords: COVID-19 related economic support; stock market returns; emerging markets; time scales wavelet transform; Fourier Toda-Yamamoto causality test. (search for similar items in EconPapers)
JEL-codes: C58 G01 G15 (search for similar items in EconPapers)
Date: 2023
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