Time scales based analysis of the effects of COVID-19 related economic support on the stock markets in emerging markets

The main purpose of this study is to investigate the causalresponse of the stock market returns to COVID-19 related economicsupport in 19 emerging countries by using the Maximal Overlap Discrete Wavelet Transform (MODWT) and Fourier Toda-Yamamoto Causality Test (FTYCT). With the help of MODWT, we identify theinstant, short-term, mid-term and long-term reactions of stock mar-ket returns and COVID-19 related economic support to each other.Implementing FTYCT, we determine the existence of the causal relationships running from COVID-19 related economic support tostock returns. We obtain two major results. First, the COVID-19 related economic support have significant effects on stock marketreturns in the short-, medium-, and long-term, except in China. Second, the results of the causality tests vary across countries based onthe different time scales. Some emerging markets show an immediate reaction to the Economic Support, while most stock market reactions occur over the medium- and long-term. Since economic support will created unintended effects on stock market returns, the waythat these support policies are implemented should be reconsidered. Also, their effectiveness should be evaluated carefully.