The media has prominently featured the totemic reproductive number in its COVID-19 coverage despite being an imperfect measure of the degree of infectivity of the virus. As such, it conveys information to the public regarding the state of the pandemic that affects market sentiment. We analyze how news about affects the volatility in stock markets worldwide and find that when is greater than one, which means the spread of the disease should soar, it has a positive and significant effect on volatility. Our results hold after controlling for government interventions and several robustness checks.
We are indebted to César Urquizo for insightful discussion. We would also like to thank Vicente Dourthe and Sebastián Gonzalez for outstanding research assistance. We alone are responsible for the views expressed in this paper and for any remaining errors.
