COVID-19 and Financial Markets: The Stories of Several Countries

The recent COVID-19 pandemic has influenced many social, economic, and business-level decisions across different countries. In this paper, we examined the response of several financial markets: Australia, Brazil, China, Iran, Russia, Spain, Sweden, South Korea, USA, Germany, and Tunisia to the evolution of the COVID-19 pandemic in these countries. We expect that countries which took quick and effective measures to contain the virus would be less vulnerable to the shock, especially the one coming from cases around the world. The sign of the market reaction itself depends on the traits of psychology of investors in each country. Using VAR model and impulse functions, we find that (1) market responses to the pandemic is less persistence and less vulnerable to external shocks in countries that reacted quickly to limit the spread of the virus; (2) the sign of the market response depends on the existing characteristics of investors’ behavior in each country.