Dynamic Equity Performance and Macroeconomic Policy Innovations: Developed vs. Emerging Markets During and After COVID-19

This paper evaluates whether dynamic abnormal performance acts as a transmission channel for macroeconomic policy innovations during crisis regimes. Applying a daily State-Space Fama–French five-factor framework—extended to heteroscedastic specifications across a majority of test assets—dynamic Jensen’s alphas and market betas are recursively estimated via the Kalman filter across 47 international equity markets. Second-stage regressions test policy and orthogonalized exchange rate innovations extracted via OLS detrending. Results confirm broad macroeconomic policy neutrality and market efficiency across 44 markets under extreme stress. However, localized friction-driven departures emerge in specific structural settings, notably the Czech Republic, India, and Mexico.