What Drives US Stock Markets during the COVID-19 Pandemic? A Global Sensitivity Analysis

This paper identifies robust determinants of US stock price movements in the economic shadow of the COVID-19 crisis and in the presence of model uncertainty, using several influential factors highlighted in relevant research. Our investigation performs an extreme bounds analysis (EBA), a global sensitivity framework capable of handling the problem of model uncertainty. We document that excess market returns, term spread, implied volatility, oil, Twitter-based economic uncertainty, and European and Chinese stock returns are the only variables that are robust to all possible variations in the condition set of information. The results also reveal the irrelevance of newly reported COVID-19 cases and deaths as novel drivers that contribute to the formation stock prices, thus lending support to the “psychophysical numbing” phenomenon.

Price and volatility spillovers between global equity, gold, and energy markets prior to and during the COVID-19 pandemic.

This study sets out to provide fresh evidence on the dynamic interrelationships, at both return and volatility levels, between global equity, gold, and energy markets prior to and during the outbreak of the novel coronavirus. We undertake our analysis within a bivariate GARCH(p, q) framework, after orthogonalizing raw returns with respect to a rich set of relevant universal factors. Under the COVID-19 regime, we find bidirectional return spillover effects between equity and gold markets, and unidirectional mean spillovers from energy markets to the equity and gold counterparts. The results also suggest the presence of large reciprocal shock spillovers between equity and both of energy and gold markets, and cross-shock spillovers from energy to gold markets. Most probably driven by the recent oil price collapse, energy markets appear to have a substantial cross-volatility spillover impact on the others. Our results offer implications for policymakers and investors.