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Do stock markets love misery? Evidence from the COVID-19

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  • Sergi, Bruno S.
  • Harjoto, Maretno Agus
  • Rossi, Fabrizio
  • Lee, Robert

Abstract

This study examines the impact of the change in the Barro Misery Index (BMI) and the novel coronavirus (COVID-19) cases and deaths on the stock markets' returns and volatility. Based on a sample of 76 different countries, we find that an increase in BMI adversely affects the stock returns and increases stock volatility. We also find that an increase in BMI coupled with an increase in percentage cases of COVID-19 adversely affect stock returns and increases volatility. We find that the impacts of BMI on stock returns and volatility are driven by real GDP changes, unemployment rate, and long-term interest rate instead of inflation rates, especially for the developed countries. Our findings are consistent with Barro (1999), which indicates that the BMI represents a better measure relative to the original misery index in predicting the economic outcome, especially during the COVID-19 pandemic. We also find that the impacts of BMI components on stock returns and volatility for the developed countries are different from the emerging markets.

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  • Sergi, Bruno S. & Harjoto, Maretno Agus & Rossi, Fabrizio & Lee, Robert, 2021. "Do stock markets love misery? Evidence from the COVID-19," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612321000040
    DOI: 10.1016/j.frl.2021.101923
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    Cited by:

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    3. Mohd Ziaur Rehman & Shabeer Khan & Ghulam Abbas & Mohammed Alhashim, 2023. "Novel COVID-19 Outbreak and Global Uncertainty in the Top-10 Affected Countries: Evidence from Wavelet Coherence Approach," Sustainability, MDPI, vol. 15(6), pages 1-20, March.
    4. Lucelma Maria dos Santos Cunha & Yuri Gomes Paiva Azevedo & Laís Manfiolli Figueira & Maisa de Souza Ribeiro, 2024. "Effect of the Brazilian corporate sustainability index on cash holdings and the moderating role of Covid‐19," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4555-4568, September.
    5. Izzeldin, Marwan & Muradoğlu, Yaz Gülnur & Pappas, Vasileios & Petropoulou, Athina & Sivaprasad, Sheeja, 2023. "The impact of the Russian-Ukrainian war on global financial markets," International Review of Financial Analysis, Elsevier, vol. 87(C).
    6. Thomas M. Fullerton & Patricia Arellano-Olague, 2022. "Short-Term Household Economic Stress Effects on Retail Activity in El Paso, Texas," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 50(1), pages 27-35, June.
    7. Cakici, Nusret & Zaremba, Adam, 2023. "Misery on Main Street, victory on Wall Street: Economic discomfort and the cross-section of global stock returns," Journal of Banking & Finance, Elsevier, vol. 149(C).
    8. Iyer, Subramanian Rama & Simkins, Betty J., 2022. "COVID-19 and the Economy: Summary of research and future directions," Finance Research Letters, Elsevier, vol. 47(PB).
    9. Asil Azimli, 2022. "Policy uncertainty sensitivity, COVID-19 and industry returns in the United States," Economics and Business Letters, Oviedo University Press, vol. 11(3), pages 107-117.
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    12. Bai, Chenjiang & Duan, Yuejiao & Fan, Xiaoyun & Tang, Shuai, 2023. "Financial market sentiment and stock return during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    COVID-19; Stock return; Trading volume; Volatility; Daily cases and deaths; Barro Misery Index (BMI);
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • I10 - Health, Education, and Welfare - - Health - - - General

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