What can we learn about the market reaction to macroeconomic surprise? Evidence from the COVID-19 crisis

Houssam Bouzgarrou; Zied Ftiti; Waël Louhichi; Mohamed Yousfi

doi:10.1016/j.ribaf.2023.101876

What can we learn about the market reaction to macroeconomic surprise? Evidence from the COVID-19 crisis

Res Int Bus Finance. 2023 Jan:64:101876. doi: 10.1016/j.ribaf.2023.101876. Epub 2023 Jan 10.

Authors

Houssam Bouzgarrou^{1

2}, Zied Ftiti³, Waël Louhichi⁴, Mohamed Yousfi^{1

2}

Affiliations

¹ University of Sousse, Tunisia.
² Higher Institute of Commercial Studies of Sousse (IHEC Sousse), University of Sousse, Tunisia.
³ EDC Paris Business School, OCRE Research Lab, France.
⁴ ESSCA School of Management, France.

Abstract

We investigate the impact of macroeconomic surprise and uncertainty on G7 financial markets around COVID-19 pandemic using two real-time, real-activity indexes recently constructed by Scotti (2016). We applies the wavelet analysis to detect the response of the stock markets to the macroeconomic surprise and an uncertainty indexes and then we use NARDL model to examine the asymmetric effect of the news surprise and uncertainty on the equity markets. We conduct our empirical analysis with the daily data from January, 2014 to September, 2020. Our findings indicate that G7 stock markets are sensitive to the macroeconomic surprise and uncertainty and the effect is more pronounced at the long term than the short term. Moreover, we show that the COVID-19 crisis supports the relationship between the macroeconomic indexes and the stock prices. The results are useful for investment decision-making for the investors on the G7 stock indices at different investment horizons.

Keywords: COVID-19; Macroeconomic surprise; NARDL; New financial risks; Uncertainty.