Conventional monetary policy, COVID-19, and stock markets in emerging economies

We examine whether conventional monetary policy moderated the impact of the COVID-19 pandemic on stock markets. Using daily historical data on emerging economies, we show that the pandemic has an adverse impact on stock markets by reducing stock returns. We then show that, in the presence of conventional monetary policy, the adverse impact does not disappear. We probe into the robustness of these findings by considering, among others, alternative COVID-19 indicators, fixed effects, cointegrating dynamics, stock market characteristics, and monetary policy frameworks, and find them to be robust. An implication is that conventional monetary policy alone may not be an effective tool during the pandemic and that policymakers should coordinate conventional monetary policy with other policies to restore stock markets to their pre-crisis level.

Exchange rate exposure in the South African stock market before and during the COVID-19 pandemic.

We examine the nature of exchange rate exposure before and during the COVID-19 pandemic. Using a multifactor arbitrage pricing model and daily data from South Africa, we show that, as compared with sectors, industries have been more exposed to the exchange rate risk during than before the pandemic. We further show that exchange rate exposure mostly hurts the sectors and industries, although a few sectors, such as beverages, mining, personal goods, and tobacco, and industries, such as basic materials, consumer goods, and technology, may benefit from it. Our estimates survived robustness checks.

Investor attention on COVID-19 and African stock returns.

We examine the financial consequences of rising global investor attention or risk attitude related to the COVID-19 pandemic for African stock markets. Using daily investor attention indices, which are based on global COVD-19-related google search queries, and stock return indices for 14 African stock markets, we show that investor attention is an important determinant of stock returns. Our estimates suggest that an increase in investor attention consistently reduces stock returns in three stock markets, namely Botswana, Nigeria, and Zambia. In contrast, an increase in investor attention may enhance stock returns in Ghana and Tanzania. Our estimates imply that, in uncertain times like the current pandemic, stock markets like those of Ghana and Tanzania may offer potential diversification benefits to investors. We demonstrate that our estimates are broadly robust using a composite measure of investor attention.•We built a direct and unambiguous measure of investor attention or risk attitude related to the COVID-19 pandemic.•In an exponential generalised autoregressive heteroskedasticity of order one (i.e. EGARCH(1,1)) framework, we regressed stock returns on their first lags, investor attention, exchange rate returns, and commodity returns, and controlled for investor attention in the variance equation.