Pandemic-induced economic policy uncertainty and US stock exchanges

Serdar Ongan; Ismet Gocer; Ayse Ongan

doi:10.1002/pa.2799

Pandemic-induced economic policy uncertainty and US stock exchanges

J Public Aff. 2022 Mar 11:e2799. doi: 10.1002/pa.2799. Online ahead of print.

Authors

Serdar Ongan¹, Ismet Gocer², Ayse Ongan³

Affiliations

¹ Department of Economics University of South Florida Tampa Florida USA.
² Department of Econometrics Adnan Menderes University Aydın Turkey.
³ Duke University, Fuqua School of Business Durham North Carolina USA.

PMID: 35572157
PMCID: PMC9088423
DOI: 10.1002/pa.2799

Abstract

This study investigates the impacts of pandemic-induced economic policy uncertainties (PIEPU) on the S&P500, Nasdaq-100, and Dow Jones indexes (stock returns). To this aim, for the first time, newly created IDEMV (the Infectious Disease Equity Market Volatility index (henceforth, PIEPU index) is used. The Autoregressive Distributed Lag (ARDL) model and the Toda and Yamamoto (Journal of Econometrics, 1995, 66, pp. 225-250) causality test are applied for the 2009-2020 period. Empirical findings indicate that rises in the PIEPU index lead to falls of only the S&P500 and Dow Jones indexes. Corporations in the tech-heavy Nasdaq100 index do not negatively respond to rises in the PIEPU index. Additionally, the negative impacts of the rises in the specifically COVID-19 based-constructed PIEPU (DCOVPIEPU) index on the S&P500 and Dow Jones indexes are higher than the negative impacts of the general PIEPU index. This can be interpreted to mean that the larger the magnitude and spread rate of a pandemic, the larger the negative impacts on stock returns. In the sample period of this study, COVID-19 is the largest and most destructive pandemic compared to H1N1 and Ebola.

Keywords: COVID‐19; Infectious Disease IDEMV Index; stock exchanges.