Impact of COVID-19 on financial returns: a spatial dynamic panel data model with random effects

Abstract Using a dataset including financial market returns and volatility proxies for several countries, we analyzed the impact of Covid-19 deaths on economy. From modeling perspective, consider spatial panel data model dynamic volatilities. Proper marginal effects are calculated to exploit information short- long-term effects. A Chow test is used identify existence structural break in each series. Our empirical evidence shows that first weeks outbreak, until mid-March 2020, identified date, effect was statistically significant, leading contraction an increase risk. Moreover, disappeared remaining months as markets moved back pre-crisis levels, causing decrease overall supports behavioral pandemic markets.