The Fear Impact of COVID-19 on Stock Markets and Exchange Rates

Abstract

This study investigates the impact of fear of COVID-19 on financial markets in the period 2020: Q2-2021: Q4 in Turkey. Exchange rate (USA Dollar) and BIST 100 (Borsa Istanbul) data were obtained from the Central Bank of Turkey Republic (TCMB); COVID-19 fear index data was obtained from Google Trends. This study applied the Augmented Dickey-Fuller (ADF) Unit Root Test and Phillips Perron (PP) Unit Root Test to examine the stationarity of the series. Then, the Frequency-Domain Causality Test was conducted to determine whether the effect of the fear index on the financial variables BIST 100 and the exchange rate is a temporary or permanent relationship and whether the causality relationship between the variables has short-, medium-, and long-term effects. Findings show that the fear caused by COVID-19 is the cause of BIST 100 in the medium and short terms. Also, it is seen that fear is the cause of the exchange rate variable in the short run. The results obtained in the study revealed that the fear of COVID-19 is temporary.