Transfer Entropy Granger Causality between News Indices and Stock Markets in U.S. and Latin America during the COVID-19 Pandemic

Semei Coronado; Jose N. Martinez; Victor Gualajara; Rojas, Omar

doi:10.3390/e24101420

Transfer Entropy Granger Causality between News Indices and Stock Markets in U.S. and Latin America during the COVID-19 Pandemic

Journal

Entropy

ISSN

1099-4300

Date Issued

2022

Author(s)

Semei Coronado

Jose N. Martinez

Victor Gualajara

Rojas, Omar

Escuela Superior de Dirección y Administración de Instituciones - CampGDL

Type

text::journal::journal article

DOI

10.3390/e24101420

URL

https://scripta.up.edu.mx/handle/20.500.12552/3868

Abstract

The relationship between three different groups of COVID-19 news series and stock market volatility for several Latin American countries and the U.S. are analyzed. To confirm the relationship between these series, a maximal overlap discrete wavelet transform (MODWT) was applied to determine the specific periods wherein each pair of series is significantly correlated. To determine if the news series cause Latin American stock markets’ volatility, a one-sided Granger causality test based on transfer entropy (GC-TE) was applied. The results confirm that the U.S. and Latin American stock markets react differently to COVID-19 news. Some of the most statistically significant results were obtained from the reporting case index (RCI), A-COVID index, and uncertainty index, in that order, which are statistically significant for the majority of Latin American stock markets. Altogether, the results suggest these COVID-19 news indices could be used to forecast stock market volatility in the U.S. and Latin America.