Stock markets' reaction to Covid-19: Moderating role of national culture

Abstract

Recent literature reports stock markets around the world reacted to the Covid-19 pandemic with negative returns. However, this reaction was not uniform across countries. In this paper, we postulate that the national-level uncertainty avoidance, which determines how sensitive members of a nation are to uncertainty, moderates the stock markets' reaction to the pandemic. Using daily data of Covid-19 confirmed cases and stock market returns from 43 countries, we find robust evidence that the decline in stock market returns in response to one percent increase in growth in confirmed cases is stronger for the countries with higher national-level uncertainty aversion.

Keywords: Coronavirus; Covid-19; National culture; Pandemic; SARS-CoV-2; Stock market; Uncertainty avoidance.

Fig. 1

The correlation between stock market returns and the growth in Covid-19 confirmed cases against the national-level uncertainty avoidance.

Fig. 2

The relationship between stock market returns and the growth in Covid-19 confirmed cases, depending upon different national-levels of uncertainty avoidance.