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Covid-19 infections and the performance of the stock market: an empirical analysis for Australia

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Brueckner, M and Vespignani, J ORCID: 0000-0003-0265-4377 2020 , Covid-19 infections and the performance of the stock market: an empirical analysis for Australia.

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Abstract

Using daily data, we estimate a vector autoregression model to characterize the dynamic
relationship between Covid-19 infections in Australia and the performance of the Australian stock
market, specifically, the ASX-200. Impulse response functions show that Covid-19 infections in
Australia have a significant positive effect on the performance of the stock market: a one standard
deviation increase in new registered cases of Covid-19 infections in Australia increases the daily
growth rate of the ASX-200 by around half a percentage point. This result is robust to alternative
lag selections of the VAR model as suggested by alternative information criteria; including in the
model the USD-AUD exchange rate and the international oil price; including in the model news by
the World Health Organization regarding a Covid-19 pandemic and public health emergency; and
including in the model the government-imposed shutdown of parts of the Australian economy. We
also present estimates of the dynamic relationship between the daily growth rate of the Dow Jones
and daily new cases of Covid-19 infections in the US. The US data show, similar to the Australian
data, that there is a significant positive effect of Covid-19 infections on the performance of the
stock market.

Item Type: Report (Discussion Paper)
Authors/Creators:Brueckner, M and Vespignani, J
Keywords: systemic risk, signed spillover, contagion, interdependence
Publisher: University of Tasmania
Copyright Information:

Copyright 2020 University of Tasmania

Additional Information:

Discussion Paper Series N 2020-06

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