Do stock markets love misery? Evidence from the COVID-19

Bruno S Sergi; Maretno Agus Harjoto; Fabrizio Rossi; Robert Lee

doi:10.1016/j.frl.2021.101923

Do stock markets love misery? Evidence from the COVID-19

Financ Res Lett. 2021 Oct:42:101923. doi: 10.1016/j.frl.2021.101923. Epub 2021 Jan 6.

Authors

Bruno S Sergi¹, Maretno Agus Harjoto², Fabrizio Rossi³, Robert Lee²

Affiliations

¹ Harvard University & University of Messina, Messina, Italy.
² Pepperdine Graziadio Business School, Pepperdine University, 24255 Pacific Coast Highway, Malibu, CA90263, United States.
³ Department of Electrical and Information Engineering, University of Cassino and Southern Lazio, Via G. Di Biasio 43, Cassino, FR 03043, Italy.

Abstract

This study examines the impact of the change in the Barro Misery Index (BMI) and the novel coronavirus (COVID-19) cases and deaths on the stock markets' returns and volatility. Based on a sample of 76 different countries, we find that an increase in BMI adversely affects the stock returns and increases stock volatility. We also find that an increase in BMI coupled with an increase in percentage cases of COVID-19 adversely affect stock returns and increases volatility. We find that the impacts of BMI on stock returns and volatility are driven by real GDP changes, unemployment rate, and long-term interest rate instead of inflation rates, especially for the developed countries. Our findings are consistent with Barro (1999), which indicates that the BMI represents a better measure relative to the original misery index in predicting the economic outcome, especially during the COVID-19 pandemic. We also find that the impacts of BMI components on stock returns and volatility for the developed countries are different from the emerging markets.

Keywords: Barro Misery Index (BMI); COVID-19; Daily cases and deaths; Stock return; Trading volume; Volatility.