Covid-19 infections and the performance of the stock market: An empirical analysis for Australia

Vol: 
56/2020
Author name: 
Brueckner M
Vespignani J
Year: 
2020
Month: 
June
Abstract: 

Using daily data, we estimate a vector autoregression model to characterize the dynamic relationship between Covid-19 infections in Australia and the performance of the Australian stock market, specifically, the ASX-200. Impulse response functions show that Covid-19 infections in Australia have a significant positive effect on the performance of the stock market: a one standard deviation increase in new registered cases of Covid-19 infections in Australia increases the daily growth rate of the ASX-200 by around half a percentage point. This result is robust to alternative lag selections of the VAR model as suggested by alternative information criteria; including in the model control variables for stock market volatility, i.e. the ASX-200 VIX; the USD-AUD exchange rate and the international oil price; news by the World Health Organization regarding a Covid-19 pandemic and public health emergency; and the government-imposed shutdown of parts of the Australian economy. We also present estimates of the dynamic relationship between the daily growth rate of the Dow Jones and daily new cases of Covid-19 infections in the US. The US data show, similar to the Australian data, that there is a significant positive effect of Covid-19 infections on the performance of the stock market.

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