The impact of COVID-19 induced panic on stock market returns: A two-year experience

Paula Cervantes, Antonio Díaz, Carlos Esparcia and Diego Huélamo

Economic Analysis and Policy, 2022, vol. 76, issue C, 1075-1097

Abstract: This paper explores the relationship between the stock markets of emerging and developed economies and the fear triggered by the COVID-19 pandemic crisis in a period that spans from mid-January 2020 to mid-February 2022. The potential relations are analyzed in terms of Granger causality and dynamic correlation, both from the view of raw undecomposed returns and different time–frequency decompositions derived from a previous wavelet transform screening approach. Overall, our Granger and dynamic correlation results suggest that changes in panic indexes resulting from the COVID-19 pandemic do not have a significant relation with the raw stock market returns, but the reverse occurs in terms of time–frequency decompositions. Correlation analysis also indicates that all countries have a quite similar pattern of phase transitions, with certain stages preceded by a hump and others by a valley, i.e., they exhibit both positive and negative correlations. Despite a gradual reduction in media coverage, both causal relationships and correlations between financial markets and panic indexes held in 2021 and early 2022.

Keywords: Stock market; COVID-19; Panic index; Granger causality; ADCC-GARCH (search for similar items in EconPapers)
JEL-codes: C01 C13 G10 G41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:76:y:2022:i:c:p:1075-1097

DOI: 10.1016/j.eap.2022.10.012

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