The psychological impact of the fear index and the spillover effect of fluctuations during the covid-19 epidemic crisis on the stock market using the panel var approach

The COVID-19 pandemic has turned a health crisis into an economic one, causing stock market fluctuations and affecting macroeconomic indicators in various nations. The behavioral finance field elucidates that investment choices are influenced by "Investor Sentiment," subsequently impacting the valuation of diverse asset classes. Consequently, this study aims to examine the psychological repercussions of the fear index during the initial COVID-19 pandemic outbreak on stock markets in fifteen countries, categorized as either developed or developing. This examination spans two distinct time frames and facilitates a comparative analysis. Empirical findings reveal that during the first surge of the pandemic, the daily influx of new COVID-19 cases globally disrupted investor sentiment, leading to an unprecedented negative return in the market. The market's resilience and the transmission of epidemic-induced fluctuations were notably more conspicuous during the first wave of the pandemic compared to the second. Moreover, the volatility index reached its highest point for the first time after the global financial crisis. This significant upswing in the volatility index highlights the substantially increased demand for put options as a safeguard against the uncertainties caused by the pandemic. Conversely, during the second wave, the results show a noticeable divergence from the first wave, indicating different market trends. JEL code: I10, I12, I18, G01, G41