Global evidence of the COVID-19 shock on real equity prices and real exchange rates: A counterfactual analysis with a threshold-augmented GVAR model

Financ Res Lett. 2022 Jun:47:102519. doi: 10.1016/j.frl.2021.102519. Epub 2021 Nov 2.

Abstract

In this study, we offer a global perspective on the impacts of the COVID-19 pandemic on financial markets using a multi-country Threshold-Augmented Global Vector Autoregressive Model of Chudik et al. (2020). We document a negative impact of the pandemic on real equity prices across countries (except the United States) and country groupings with the highest negative impact recorded in 2020Q2. The biggest losers are the emerging economies while the biggest gainers are the United States whose real stock prices remain positive and the Euro Area that achieved real exchange rate appreciation when the financial markets were mostly vulnerable. Our results support the effectiveness of the quantitative easing policy regime in the Euro Area during the COVID-19 pandemic and also suggest hedging role for the US stocks among other suggested safe assets.

Keywords: COVID-19; Financial markets; Threshold-GVAR.