The Stock Market Is not the Economy? Insights from the COVID-19 Crisis

Capelle-Blancard, Gunther; Desroziers, Adrien

doi:10.2139/ssrn.3638208

Cited by 84 publications

(86 citation statements)

References 7 publications

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“…The Bucharest Stock Exchange also encountered instabilities and registered a decay of 8.6 percent [89]. Capelle-Blancard and Desroziers [90] contended that prior to February 21, stock markets disregarded the pandemic, but over February 23-March 20, the reaction to the rising number of diseased people was strong. As such, Mazur, Dang and Vega [79] emphasized that the failure of stock quotes in March 2020 marked one of the major financial market collapses in history.…”

Section: Summary Statistics Correlations and Stationarity Examinationmentioning

confidence: 99%

Stock Market Reactions to COVID-19 Pandemic Outbreak: Quantitative Evidence from ARDL Bounds Tests and Granger Causality Analysis

Gherghina

Armeanu

Joldeș

2020

IJERPH

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This paper examines the linkages in financial markets during coronavirus disease 2019 (COVID-19) pandemic outbreak. For this purpose, daily stock market returns were used over the period of December 31, 2019–April 20, 2020 for the following economies: USA, Spain, Italy, France, Germany, UK, China, and Romania. The study applied the autoregressive distributed lag (ARDL) model to explore whether the Romanian stock market is impacted by the crisis generated by novel coronavirus. Granger causality was employed to investigate the causalities among COVID-19 and stock market returns, as well as between pandemic measures and several commodities. The outcomes of the ARDL approach failed to find evidence towards the impact of Chinese COVID-19 records on the Romanian financial market, neither in the short-term, nor in the long-term. On the other hand, our quantitative approach reveals a negative effect of the new deaths’ cases from Italy on the 10-year Romanian bond yield both in the short-run and long-run. The econometric research provide evidence that Romanian 10-year government bond is more sensitive to the news related to COVID-19 than the index of the Bucharest Stock Exchange. Granger causality analysis reveals causal associations between selected stock market returns and Philadelphia Gold/Silver Index.

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Section: Summary Statistics Correlations and Stationarity Examinationmentioning

confidence: 99%

Stock Market Reactions to COVID-19 Pandemic Outbreak: Quantitative Evidence from ARDL Bounds Tests and Granger Causality Analysis

Gherghina

Armeanu

Joldeș

2020

IJERPH

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“…In a short epistle, Krugman [4] disclosed that the "stock market is not the economy", and that "connection between stock growth and the expansion of the real sector of the economy lies within loose and nonexistence". Capelle-Blancard and Desroziers [5] confirmed various interventions by governments, as well as the believe that loose monetary policy and lockdown initiatives stimulated the rebound of stocks, they further agreed with Krugman [4] that there exists a loose relationship between market fundamentals and stock market uncertainties. Jefferson [7] on the other hand established that projections of future crude oil prices are uncertain, however, in the absence of supply-side shocks, oil prices are likely to rebound by the end of the third quarter of 2020.…”

Section: Introductionmentioning

confidence: 70%

“…Though the opportunity cost of holding cash balances appeared high, there was an increasing need to hold precautionary cash to soar the value of firms. Capelle-Blancard and Desroziers [5] revealed that investors in the stock markets were quick to respond to soaring cases of COVID-19, with advanced economies being highly affected. The authors also unearth that loose monetary and fiscal policies introduced by central banks and governments caused interest rates to fall, which moderated the fall in stock prices, making the market less responsive to the crisis.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Analysts attribute the rebound of the stock market partly to various loose monetary policy and other interventions pursued by central banks [4], which instilled confidence into shareholders, lightening fears of the health crisis. Besides, country-specific characteristics such as structural economic fragility and "at-risk" population, also seem to have had little effect on stock market reactions to the pandemic [5].…”

Section: Introductionmentioning

confidence: 99%

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COVID-19 Outbreak and Co-Movement of Global Markets: Insight from Dynamic Wavelet Correlation Analysis

Omane-Adjepong¹,

Alagidede²,

Dramani³

2021

Wavelet Theory

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The COVID-19 pandemic has in its short existence caused economic downturn and affected global markets. As would be expected, the occurrences of global crises or shocks often heighten uncertainties in international markets and increase correlations among them. Yet, not much is known of the actual impacts of COVID-19 on the behavior of global markets. This piece attempts to investigate whether the COVID-19 crisis has had any impact on the interrelationship structure of international markets using the cross-wavelet squared coherence and a dynamic wavelet correlation technique. It emerges that co-movements of the pairwise series become stronger (0.70–0.89) during the heightened periods labeled as epidemic and pandemic phases of COVID-19, than that of the periods that mark the pre-COVID-19 era (−0.49–0.36), hence announcing the influence of the crisis and eroding prospect of benefiting from a hedge instrument and/or a diversifier. Again, we observe that stock market-Global REITs have been the most influenced pair, showing significantly peaked co-movements (0.63–0.87) during the distinct phases of COVID-19. We attribute these developments to the loose monetary and financial measures implemented by central banks of the world. The findings hold important implications for economic and financial actors regarding diversification, hedging, and investment risk management.

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“…By inducing hefty increases in the value of financial assets the large QE operations deployed during the global financial crisis created an artificial disconnect between financial markets and the real economy (Capelle-Blancard and Desroziers 2020 ). It also reinforced a long run trend of rising inequality in the distribution of wealth.…”

Section: Discussionmentioning

confidence: 99%

COVID-19, Seignorage, Quantitative Easing and the Fiscal-Monetary Nexus

Cukierman

2021

Comp Econ Stud

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The huge fiscal expansions triggered by the corona crisis raised debt/GDP ratios to very high levels. This led some economists to reconsider the taboo on seignorage. Following a brief documentation of the crisis impact and aggregate demand policies responses the paper discusses views of academics and policymakers on seignorage. Optimal taxation considerations imply that the decision on allocating deficit financing between debt and seignorage falls within the realm of fiscal authorities—a fact that infringes on central bank (CB) autonomy. The paper explores ideas aimed at improving the tradeoff between those two principles. Implication of cross-country variations in the need to use seignorage is discussed. Comparison of the indirect contribution of quantitative easing (QE) to deficit financing with the direct contribution of seignorage implies that QE is a substitute to seignorage that preserves central bank dominance without much change in existing monetary institutions. Comparison of empirical evidence from the USA during the global financial crisis with the post-WWI German inflation supports the view that for countries experiencing deflationary pressure seignorage is more potent in moving inflation toward its target than QE. Given the current outlook temporary use of seignorage does not appear to involve a substantial risk of inflation.

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The Stock Market Is not the Economy? Insights from the COVID-19 Crisis

Cited by 84 publications

References 7 publications

Stock Market Reactions to COVID-19 Pandemic Outbreak: Quantitative Evidence from ARDL Bounds Tests and Granger Causality Analysis

Stock Market Reactions to COVID-19 Pandemic Outbreak: Quantitative Evidence from ARDL Bounds Tests and Granger Causality Analysis

COVID-19 Outbreak and Co-Movement of Global Markets: Insight from Dynamic Wavelet Correlation Analysis

COVID-19, Seignorage, Quantitative Easing and the Fiscal-Monetary Nexus

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