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COVID-19 Cases and Stock Prices by Sector in Major Economies: What Do We Learn from the Daily Data?

Author

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  • Hussein Hassan

    (Department of Economics, University of Reading)

  • Minko Markovski

    (Department of Economics, University of Reading, and Central Bank of the UAE, Abu Dhabi)

  • Alexander Mihailov

    (Department of Economics, University of Reading)

Abstract

This paper is the first to empirically uncover, via a recent GARCH-based estimation technique addressing the problem of dimensionality, volatility correlations and Granger causality between the daily COVID-19 cases and the share price indexes in all 11 sectors of the Global Industry Classification Standard across 11 major world economies accounting for 83.1% of the global stock market capitalization for the two full years of the current global pandemic, January 2020 - December 2021. We document a shift of density mass from dominantly negative correlations by sector from the first and second halves of 2020, with no vaccines to reassure human fear, to dominantly positive correlations in the first and second halves of 2021, with the population vaccinated two or three times and recovering its optimism. Granger causality tests reveal almost immediate news transmission, of a day or two, from the COVID-19 cases to sectoral price indexes, with some common patterns but also some heterogeneity by sector and country. We interpret the documented main trends and findings by the usual story of how societies learn: faced with an unexperienced danger and no cure for the virus, people panicked all over the world in 2020, influencing share prices dominantly in a negative direction; by contrast, once equipped with vaccines and feeling reassured for the longer run, optimism recovered in 2021, and stock prices, including by sector, too.

Suggested Citation

  • Hussein Hassan & Minko Markovski & Alexander Mihailov, 2022. "COVID-19 Cases and Stock Prices by Sector in Major Economies: What Do We Learn from the Daily Data?," Economics Discussion Papers em-dp2022-04, Department of Economics, University of Reading.
    • Handle: RePEc:rdg:emxxdp:em-dp2022-04
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    File URL: https://www.reading.ac.uk/web/FILES/economics/emdp202204.pdf
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    References listed on IDEAS

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    Cited by:

    1. Hussein Hassan & Minko Markovski & Alexander Mihailov, 2023. "A TGARCH Quantification of the Average Effect of COVID-19 Cases on Share Prices by Sector: Comparing the US and the UK," Economics Discussion Papers em-dp2023-15, Department of Economics, University of Reading.

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    More about this item

    Keywords

    COVID-19 cases; share price sectoral indexes; empirical volatility cor- relations; Granger causality; daily-frequency GARCH-based estimation; waves of pessimism and optimism; social learning about the death toll of a pandemic; public health panic versus reassurance;
    All these keywords.

    JEL classification:

    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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