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The Brazilian financial market reaction to COVID-19: A wavelet analysis

Author

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  • Costa, Antonio
  • da Silva, Cristiano
  • Matos, Paulo

Abstract

We study the Brazilian stock market response to the COVID-19 pandemic. Considering the COVID-19 data from January 22, 2020, to August 31, 2021, and a daily dataset comprised of the Bovespa index - the main performance indicator of the stocks in the Brazilian capital market -, its sector components, and COVID-19 cases and deaths in the most affected countries, we employ the wavelet tools of partial coherences, partial phase differences, dissimilarities, and VaR ratio. We find significant partial coherence spots, decrease in dissimilarity, and increase in VaR ratio suggesting the Brazilian stock market responded forcefully to COVID-19 local and international data and that this response varies over time and frequencies being modulated by the local stage of outbreak. The results also suggest a higher response to deaths data and that both market wide response and the sector contagion are more evident on longer term frequencies.

Suggested Citation

  • Costa, Antonio & da Silva, Cristiano & Matos, Paulo, 2022. "The Brazilian financial market reaction to COVID-19: A wavelet analysis," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 13-29.
    • Handle: RePEc:eee:reveco:v:82:y:2022:i:c:p:13-29
    DOI: 10.1016/j.iref.2022.05.010
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    More about this item

    Keywords

    Brazilian stock market; COVID-19 impacts; Lead-lag conditional relationships; Time-frequency domain; Wavelets;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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