The COVID-19 pandemic uncertainty, investor sentiment, and global equity markets: Evidence from the time-frequency co-movements

Saumya Ranjan Dash and Debasish Maitra

The North American Journal of Economics and Finance, 2022, vol. 62, issue C

Abstract: We use daily data of the Google search engine volume index (GSVI) to capture the pandemic uncertainty and examine its effect on stock market activity (return, volatility, and illiquidity) of major world economies while controlling the effect of the Financial and Economic Attitudes Revealed by Search (FEARS) sentiment index. We use a time–frequency based wavelet approach comprising wavelet coherence and phase difference for our empirical assessment. During the early spread of the COVID-19, our results suggest that pandemic uncertainty, and FEARS sentiment strongly co-move, and increased pandemic uncertainty leads to pessimistic investor sentiment. Furthermore, our partial wavelet analysis results indicate a synchronization relationship between pandemic uncertainty and stock market activities across G7 countries and the world market. Our results are robust to the inclusion of alternative pandemic fear measure in the form of equity market volatility infectious disease tracker. The pandemic uncertainty and associated sentiment implications could be one plausible reason for increased volatility and illiquidity in the market, and hence, policymakers should look upon this issue for the financial market stability perspective.

Keywords: Pandemic uncertainty; Investor sentiment; COVID-19; Time–frequency; Wavelet; Stock market (search for similar items in EconPapers)
JEL-codes: C22 C32 G10 G12 G14 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s106294082200064x

DOI: 10.1016/j.najef.2022.101712

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