Importantly, the impact of COVID‐19 related quantitative easing measures by central banks in advanced countries extended to EMEs, with significant positive spillovers to EME stock markets in Asia, Europe and Latin America. Our findings also highlight the role that global factors and developments in the world's leading financial centers have on financial conditions in EMEs. Quantitative easing and fiscal stimulus packages mainly helped to boost stock prices, notably for advanced and emerging economies in Asia. In particular, emerging economies in Asia and Europe have experienced the sharpest impacts on stock, bond and exchange rates due to COVID‐19, as well as abrupt and substantial capital outflows.

Using daily data over the period Januto August 31, 2020, and controlling for a host of domestic and global macroeconomic and financial factors, we use a fixed effects panel approach and a structural VAR framework to show that emerging markets have been more heavily affected than advanced economies. The effectiveness of fiscal and monetary policy responses to COVID‐19 is also tested. This paper empirically examines the reaction of global financial markets across 38 economies to the COVID‐19 outbreak, with special focus on the dynamics of capital flows across 14 emerging market economies.

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