Stock market volatility and the COVID-19 reproductive number

Fernando Díaz; Pablo A Henríquez; Diego Winkelried

doi:10.1016/j.ribaf.2021.101517

Stock market volatility and the COVID-19 reproductive number

Res Int Bus Finance. 2022 Jan:59:101517. doi: 10.1016/j.ribaf.2021.101517. Epub 2021 Aug 24.

Authors

Fernando Díaz¹, Pablo A Henríquez¹, Diego Winkelried²

Affiliations

¹ School of Business and Economics and Center for Empirical Research in Businesses (CIEN), Universidad Diego Portales, Santiago, Chile.
² School of Economics and Finance, Universidad del Pacífico, Lima, Peru.

Abstract

The media has prominently featured the totemic reproductive number $R$ in its COVID-19 coverage despite being an imperfect measure of the degree of infectivity of the virus. As such, it conveys information to the public regarding the state of the pandemic that affects market sentiment. We analyze how news about $R$ affects the volatility in stock markets worldwide and find that when $R$ is greater than one, which means the spread of the disease should soar, it has a positive and significant effect on volatility. Our results hold after controlling for government interventions and several robustness checks.

Keywords: COVID-19; Panel data; Reproductive number; Stock market volatility.