ISSN: 2056-3736 (Online Version) | 2056-3728 (Print Version)

Have Stock Markets across the Globe Been Kidnapped by the Covid-19 Pandemic?

Huaibing Yu

Correspondence: Huaibing Yu, HuaibingYu@my.unt.edu

Department of Finance, University of North Texas, USA

pdf (681.58 Kb) | doi: https://doi.org/10.47260/bae/7213

Abstract

Based on data of 6 major developed stock markets, this paper provides empirical evidences about how stock markets across the globe behave during the Covid-19 global pandemic. Evidences show that the movements of most stock market indices were individually dependent on the development of the Covid-19 pandemic in the corresponding countries during the pre-bottom period. However, this phenomenon largely faded away after stock markets bottomed out and entered into the recovery stage. Vector error correction model (VECM) confirms the cross-markets equilibrium during the Covid-19 pandemic and the majority of stock markets are expected to restore to new equilibriums relatively quickly if exogenous shocks are introduced in the future.

Keywords:

  Covid-19 Pandemic, Stock Market, Cointegration, Market Behavior, Market Impact


References

Ahundjanov, B. B., Akhundjanov, S. B. and Okhunjanov, B. B. (2020). Information Search and Financial Markets under COVID-19. Entropy, 22(7), 791.

Bartram, S.M. and Wang, Y.H. (2005). Another look at the relationship between cross-market correlation and volatility. Finance Research Letters, 2(2), pp.75-88.

Chiang, T.C., Jeon, B.N. and Li, H. (2007). Dynamic correlation analysis of financial contagion: Evidence from Asian markets. Journal of International Money and finance, 26(7), pp.1206-1228.

Dickey, D.A. and Fuller, W.A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), pp.427-431.

Guo, F., Chen, C.R. and Huang, Y.S. (2011). Markets contagion during financial crisis: A regime-switching approach. International Review of Economics & Finance, 20(1), pp.95-109.

Hamao, Y., Masulis, R.W. and Ng, V. (1990). Correlations in price changes and volatility across international stock markets. The review of financial studies, 3(2), pp.281-307.

Hamilton, J. D. 1994. Time Series Analysis. Princeton University Press.

Hon, M.T., Strauss, J.K. and Yong, S.K. (2007). Deconstructing the Nasdaq bubble: A look at contagion across international stock markets. Journal of International Financial Markets, Institutions and Money, 17(3), pp.213-230.

Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of economic dynamics and control, 12(2-3), pp.231-254.

Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica: journal of the Econometric Society, pp.1551-1580.

Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica: journal of the Econometric Society, pp.1551-1580.

Johansen, S. (1995). Likelihood-based inference in cointegrated vector autoregressive models. Oxford University Press on Demand.

Kenourgios, D., Samitas, A. and Paltalidis, N. (2011). Financial crises and stock market contagion in a multivariate time-varying asymmetric framework. Journal of International Financial Markets, Institutions and Money, 21(1), pp.92-106.

Khan, S. and Park, K.W.K. (2009). Contagion in the stock markets: The Asian financial crisis revisited. Journal of Asian Economics, 20(5), pp.561-569.

L├╝tkepohl, H. (2005). New introduction to multiple time series analysis. Springer Science & Business Media.

Nielsen, B. (2006). Order determination in general vector autoregressions. In Time series and related topics (pp. 93-112). Institute of Mathematical Statistics.

Papadamou, S., Fassas, A., Kenourgios, D. and Dimitriou, D. (2020). Direct and Indirect Effects of COVID-19 Pandemic on Implied Stock Market Volatility: Evidence from Panel Data Analysis. MPRA working paper.

Paulsen, J. (1984). Order determination of multivariate autoregressive time series with unit roots. Journal of time series analysis, 5(2), pp.115-127.

Sherif, M. (2020). The impact of Coronavirus (COVID-19) outbreak on faith-based investments: An original analysis. Journal of Behavioral and Experimental Finance, 100403.

Tsay, R.S. (1984). Order selection in nonstationary autoregressive models. The Annals of Statistics, 12(4), pp.1425-1433.

Watson, M.W. (1994). Vector autoregressions and cointegration. Handbook of econometrics, 4, pp.2843-2915.