Winter Is Coming: Repercussions of a New COVID-19 Wave in Global Stock Markets

The outbreak of the pandemic of COVID-19 in the beginning of 2020 had a significant impact both to the real economy and to the financial markets which exhibited high volatility movements of unprecedented scale. In this study we employ an AR(1)-GARCH(1,1) model with Student-t distributed standard errors in 8 jurisdictions to investigate the effects of the pandemic outbreak in the stock market returns, and based on that to assess the impact of a new massive wave of infections in the upcoming Winter. Our main finding is that there is strong negative relationship between new COVID-19 cases and stock market returns, whereas policy reactions had a beneficial impact only when combined with the effectiveness of measures taken by each country to curtail the pandemic. Finally, even though the perception about the virus has changed significantly, as fear has given ground to the hope for treatment, an abrupt massive wave of new infections could provoke exacerbated financial turmoil in 2021.