The impact of macroeconomic factors and Covid-19 on the Bucharest Stock Exchange Trading Index

This paper investigates the impact of macroeconomic factors and COVID-19 on the Romanian Stock Exchange using monthly data spanning from March 2020 to September 2022. This time frame is selected to capture the evolution of the pandemic and to consider all the major waves of infections that Romania faced. We employ the Autoregressive Distributed Lag (ARDL) – Bounds Test technique for estimation. ARDL is chosen as the econometric model due to its suitability for capturing the dynamics of both short-run and long-run relationships. Since the COVID-19 pandemic severely interrupted financial markets and the real economy globally, this analysis also includes COVID-19 related variables to observe the effect of the economic hiatus on the domestic stock market. The originality of this paper lies in its pioneering approach of incorporating both macroeconomic variables and COVID-19-related factors into the same econometric model. At the time of writing, this paper stands out as one of the few studies that comprehensively examine the impact of both macroeconomic conditions and the specific challenges posed by the COVID-19 pandemic on the Romanian Stock Exchange during various waves of infections. Results indicate that macroeconomic and COVID-19 variables have an impact on the Romanian Stock Market. In both the short run and long run, the exchange rate seems to have the most significant influence on the stock market. The research findings bear implications for policymakers, regulators, academia, and investors.