Unpacking the crisis: Impact of COVID-19 on global equity flows

This paper examines how the COVID-19 pandemic affected international equity flows through two different channels: a direct channel, capturing the real economic disruptions caused by rising infection rates, and an indirect channel, reflecting pandemic-related panic and uncertainty amplified by media coverage. Using high-frequency country/regional-level data for 66 economies—26 advanced and 40 emerging economies—between January 2020 and December 2022, we disentangle and quantify these two effects. Compared to the direct effect of pandemic, we show that the indirect panic-driven effect is stronger, and not simply a reflection of pandemic severity. The negative impact of panic on equity flows is more pronounced in the early months of 2020, and is partially offset by government interventions—particularly in advanced economies—while similar measures in emerging markets have limited impact. Taken together, our findings highlight the importance of distinguishing between real economic shocks and sentiment-driven dynamics of the pandemic, and offer practical insights for policymakers in preparing for future crisis.