What Drives Stocks during the Corona-Crash? News Attention vs. Rational Expectation

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Abstract

We explore if the corona-crash 2020 was driven by news attention or rational expectations about the pandemic’s economic impact. Using a sample of 64 national stock markets covering 94% of the world’s GDP, we find the stock markets’ decline to be mainly associated with higher news attention and less with rational expectation. We estimate the economic cost from the news hype to amount to USD 3.5 trillion for the US and USD 200 billion on average for the rest of the G8 countries.

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Most cited references 28

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Financial markets under the global pandemic of COVID-19

Dayong Zhang, Min Hu, Qiang Ji (2020)

Highlights • The COVID-19 pandemic has significant impacts on global financial markets. • Substantial increases of volatility are found in global markets due to the outbreak. • Global stock markets linkages display clear different patterns before and after the pandemic announcement. • Policy responses may create further uncertainties in the global financial markets.

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COVID-19 pandemic, oil prices, stock market, geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach

Arshian Sharif, Chaker Aloui, Larisa Yarovaya (2020)

In this paper, we analyze the connectedness between the recent spread of COVID-19, oil price volatility shock, the stock market, geopolitical risk and economic policy uncertainty in the US within a time-frequency framework. The coherence wavelet method and the wavelet-based Granger causality tests applied to US recent daily data unveil the unprecedented impact of COVID-19 and oil price shocks on the geopolitical risk levels, economic policy uncertainty and stock market volatility over the low frequency bands. The effect of the COVID-19 on the geopolitical risk substantially higher than on the US economic uncertainty. The COVID-19 risk is perceived differently over the short and the long-run and may be firstly viewed as an economic crisis. Our study offers several urgent prominent implications and endorsements for policymakers and asset managers.

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Author and article information

Journal

Journal ID (publisher-id): SUSTDE

Title: Sustainability

Abbreviated Title: Sustainability

Publisher: MDPI AG

ISSN (Electronic): 2071-1050

Publication date Created: June 2020

Publication date (Electronic): June 19 2020

Volume: 12

Issue: 12

Page: 5014

Article

DOI: 10.3390/su12125014

SO-VID: 32120259-0972-429e-bfec-4f6d1155af7a

License:

https://creativecommons.org/licenses/by/4.0/

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