U.S. stock market under COVID-19-related uncertainty

Ibraheem Monday Ojelade
Department of Compute Science, Austin Peay State University, Clarksville, Tennessee, United State.
DOI – http://doi.org/10.37502/IJSMR.2022.51012

Abstract

This study examines the impact of COVID-19-related uncertainty on U.S. stock returns over different market conditions. This research addresses its objective using three variants of the uncertainty index, namely the EMV-ID uncertainty index, the composite COVID-19 news-and-macro-based uncertainty index (CNMI), and the new measure of the COVID-19 news-based uncertainty index (UNC). The study further applies quantile regression to examine the effect of the COVID-19-related uncertainty indices on the conditional quantile distribution of the stock returns over nine quantiles ranging from 10th to 90th tails. The findings of the study reveal evidence of a positive effect of uncertainty on stock returns during the bearish market condition, while a negative impact is recorded in the bullish market condition when the composite COVID-19 news-and macro-based uncertainty index (CNMI) was adopted. Meanwhile, the results from the estimations using the EMV-ID uncertainty index and COVID-19 New-based uncertainty index (UNC) suggest a negative and significant effect of uncertainty during the bearish period and a significant positive impact on the U.S. stock returns during the bullish market condition. The findings of the study offer relevant policy implications for investors in the stock market as well as policy-makers.

Keywords: COVID-19-related uncertainty; U.S. stock returns; Quantile regression; EMV-ID uncertainty index.

JEL codes: C32; E44; G15; G18

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