Predicting Stock Returns and Volatility in BRICS Countries during a Pandemic: Evidence from the Novel Wild Bootstrap Likelihood Ratio Approach

In this study, we examine how attention to different pandemics leads returns and volatility of BRICS stock markets, while controlling for economic policy uncertainty. The attention is measured via the newly developed daily infectious disease equity market volatility tracker (EMV-ID). To achieve the study objective, the wild bootstrap likelihood ratio test is employed in analysing time-series data covering the period November 1997 – May 2021. The estimations confirm a time-varying predictive performance of the EMV-ID on both stock returns and volatility series of BRICS, which increases significantly during the months marked by pandemics. The predictive power of the EMV-ID on stock market volatility is however relatively stronger than its predictive power on stock market returns. Our results are robust to alternative specification of volatility based on a Generalized Autoregressive Conditional Heteroskedasticity model.