Financial markets' responses to COVID-19: A comparative analysis

We examine the effects of covid-19 infections and deaths on bond yields and stock returns and possible contagion effects across markets using data for the period 01.07.2019 through 30.06.2020. Deploying different empirical techniques, we find, unlike some papers in the literature that group countries and run panel regressions, that the effects of covid-19 on the financial markets differed by country depending on the way the outbreak was managed. First, covid-19 infections generally had a fleeting effect on stock returns and bond yields. Second, in countries that experienced a covid-19 health crisis during the study period (e.g., UK and Italy), covid-19 deaths were associated with bond yield increases. For countries employing less restrictive ways of managing the disease (e.g., Sweden), the covid-19 outbreak elicited investor fears of near-term burgeoning infections and possible concomitant economic effects, which caused bond yields to rise.