Information Search and Financial Markets under COVID-19.

Behzod B Ahundjanov,Sherzod B Akhundjanov,Botir B Okhunjanov

doi:10.3390/e22070791

Behzod B Ahundjanov, Sherzod B Akhundjanov + Show 1 more

Open Access

https://doi.org/10.3390/e22070791

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Abstract

The discovery and sudden spread of the novel coronavirus (COVID-19) exposed individuals to a great uncertainty about the potential health and economic ramifications of the virus, which triggered a surge in demand for information about COVID-19. To understand financial market implications of individuals’ behavior upon such uncertainty, we explore the relationship between Google search queries related to COVID-19—information search that reflects one’s level of concern or risk perception—and the performance of major financial indices. The empirical analysis based on the Bayesian inference of a structural vector autoregressive model shows that one unit increase in the popularity of COVID-19-related global search queries, after controlling for COVID-19 cases, results in –% of a cumulative decline in global financial indices after one day and –% of a cumulative decline after one week.

Highlights

Since its origin in Wuhan, China in December 2019 [1], the novel coronavirus 2019-nCoV, or COVID-19, has quickly grown into a global pandemic, exposing the world to unprecedented health and economic challenges
Consider a bivariate vector of endogenous variables yt = (∆gt, ∆ f t )0 in period t, where ∆gt is the percentage change in daily global Google search queries related to the COVID-19; and ∆ f t is the percentage change in daily financial market index
The novel coronavirus has spread to every corner of the world within a short period of time, crippling economic and financial markets in unprecedented manner

Summary

Introduction

COVID-19, has quickly grown into a global pandemic, exposing the world to unprecedented health and economic challenges. Severity of the pandemic has urged individuals to change their normal behaviors and governments to take unparalleled actions (travel restrictions, school and business closures, stay-at-home orders, among others), which have triggered a global economic downturn [2,3] and financial market turmoil [4,5,6]. Understanding the economic and financial market consequences of individuals’ and investors’ behaviors in the face of a pandemic represents an important consideration, both for policy design and financial strategy and planning. An essential aspect of the novel coronavirus is that upon its discovery it exposed individuals to a great uncertainty about the virus and its potential health and economic ramifications. To understand the financial market implications of individuals’ behavior upon such uncertainty, we investigate the relationship between

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