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Understanding the Impact of COVID-19 on Financial Markets: Animal Spirits or Black Swan?

In: Studies in International Economics and Finance

Author

Listed:
  • Wasim Ahmad

    (Indian Institute of Technology Kanpur)

  • Smarth Gupta

    (Indian Institute of Technology Kanpur)

  • Shirin Rais

    (Aligarh Muslim University)

Abstract

This chapter investigates how the financial markets react to the coronavirus outbreak by utilizing an event-study approach. We consider several news-based positive and negative COVID-19 events and their impact on emerging vs. developed markets and major asset classes. We examine the impact of COVID-19 events on the implied volatility of the global financial system, which is strongly observed in March 2020. Even during black swan events, we observe the asymmetric impact of coronavirus outbreaks across assets and markets. The response of black swan events generates a pronounced investor reaction. We also observe the role of ‘Animal Spirits’ through ‘Narrow Framing’ as investors seem to consider the pandemic as short-term shocks.

Suggested Citation

  • Wasim Ahmad & Smarth Gupta & Shirin Rais, 2022. "Understanding the Impact of COVID-19 on Financial Markets: Animal Spirits or Black Swan?," India Studies in Business and Economics, in: Naoyuki Yoshino & Rajendra N. Paramanik & Anoop S. Kumar (ed.), Studies in International Economics and Finance, pages 617-632, Springer.
    • Handle: RePEc:spr:isbchp:978-981-16-7062-6_31
    DOI: 10.1007/978-981-16-7062-6_31
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