COVID-19, stock market and sectoral contagion in US: a time-frequency analysis

Matos, Paulo Rogério Faustino; Costa, Antonio; Silva, Cristiano da

doi:10.1016/j.ribaf.2021.101400

Cited by 53 publications

(31 citation statements)

References 19 publications

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“…The authors point that international information asymmetry can drive the removal of resources from investors across countries. Matos et al (2021) support the presence of this movement in the beginning of the coronavirus pandemic.…”

Section: Literature Reviewsupporting

confidence: 55%

“…Fortunately, there is already some literature on contagion between sectors, and specifically the banking sector, during this pandemic. Matos et al (2021) propose assessing the conditional relationship in the time-frequency domain between the return on S&P 500 and the cases or deaths by COVID-19 in Hubei, China, countries with record deaths and the world, for the period from 29 January to 30 June 2020. They find that short-term cycles of deaths in Italy in the first days of March, and soon afterwards, cycles of deaths in the world can lead out-of-phase US stock market.…”

Section: Introductionmentioning

confidence: 99%

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On the Risk-based Contagion of G7 Banking System and the COVID-19 Pandemic

Matos

Costa

Silva

2021

Global Business Review

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We revisit the discussion on banking system contagion by proposing a risk-based empirical analysis during the current pandemic period. We use daily returns on G7 banking sector indices from 1 January 2015 to 31 December 2019 (pre-pandemic), and from 1 January 2020 to 16 October 2020 (pandemic). Based on the dissimilarities, the pandemic has intensified banking contagion. Frequency-based Granger causality is useful to tell the history of the pass-through of this health crisis across G7 banking sectors. We highlight the increase in the predictive relevance of Italian banking cycles during the pandemic. VaR ratio analysis, considering 21 possible pairwise combinations with the G7 financial indices, suggests a stronger contagion between banking systems. The greatest contagion is evident in the Italian and French banking systems, countries severely affected by deaths by COVID-19, while we find less contagion between Japan and Germany, countries least affected by the first wave of COVID-19.

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Section: Literature Reviewsupporting

confidence: 55%

Section: Introductionmentioning

confidence: 99%

On the Risk-based Contagion of G7 Banking System and the COVID-19 Pandemic

Matos

Costa

Silva

2021

Global Business Review

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“…A fast-growing body of research on the pandemic effects on financial markets has emerged. Matos et al (2021) demonstrated that the US stock market was negatively correlated to the cycles of deaths in Italy and the world at the beginning of the pandemic. Albulescu (2020) showed that COVID-19 caused a significant increase in the US stock market volatility.…”

Section: Introductionmentioning

confidence: 99%

Contagion and portfolio management in times of COVID-19

Belhassine

Karamti

2021

Economic Analysis and Policy

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This paper aims to investigate the COVID-19 pandemic impacts on the interconnectedness between the Chinese stock market and major financial and commodity markets—gold, silver, Bitcoin, WTI, S&P 500, and Euro STOXX 50—and analyze the portfolio design implications. Using daily data from 2018 to 2021, we first apply the wavelet power spectrum (WPS) to visualize volatility shifts. In contrast to previous research, we empirically identify the precise COVID-19 outbreak dates for each market using the Perron (1997) breakpoint test. Finally, we employ the bivariate DCC-GARCH model to analyze the connectedness between markets. The findings reveal that the COVID-19 pandemic caused volatility shifts of different intensities for all of the studied markets. Moreover, each return series exhibits one break date, which is specific to each market and corresponds to a distinct COVID-19-related event. Correlations, hedge ratios, and optimal portfolio weights changed significantly after the COVID-19 outbreak. There is evidence of contagion effects between the Chinese stock market and S&P 500, Euro STOXX 50, gold, and silver. Interestingly, the latter two assets lost their safe haven property with SSE. However, WTI and Bitcoin act as safe havens against SSE risks.

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“…As the extended usage of wavelet transformation, wavelet coherence and phase difference can be utilized to recognize whether two time series are quantitatively connected by a certain correlation even causality relationship. Matos et al (28) assessed the conditional relationship in the time-frequency domain between the return on SPX 500 and COVID-19 confirmed cases and deaths, by partial coherencies, phase-difference diagrams, and gains, and found the usefulness of low frequency cycles of U.S. stock market index in anticipating the cycles of deaths in an anti-phasic way. Su et al (2019) utilized continuous wavelet analysis and aimed to assess whether the causality of geopolitical risk, oil prices, and financial liquidity supported the monetary equilibrium model in Saudi Arabia.…”

Section: Introductionmentioning

confidence: 99%

Quantifying Time-Frequency Co-movement Impact of COVID-19 on U.S. and China Stock Market Toward Investor Sentiment Index

Nian

Yuan

et al. 2021

Front. Public Health

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The worldwide spread of COVID-19 dramatically influences the world economic landscape. In this paper, we have quantitatively investigated the time-frequency co-movement impact of COVID-19 on U.S. and China stock market since early 2020 in terms of daily observation from National Association of Securities Dealers Automated Quotations Index (NDX), Dow Jones Industrial Average (DJIA), Standard & Poor's 500 Index (SPX), Shanghai Securities Composite Index (SSEC), Shenzhen Securities Component Index (SZI), in favor of spatiotemporal interactions over investor sentiment index, and propose to explore the divisibility and the predictability to the volatility of stock market during the development of COVID-19. We integrate evidence yielded from wavelet coherence and phase difference to suggest the responses of stock market indexes to the COVID-19 epidemic in a long-term band, which could be roughly divided into three distinguished phases, namely, 30–75, 110–150, and 220–280 business days for China, and 80–125 and 160–175 after 290 business days for the U.S. At the first phase, the reason for the extreme volatility of stock market mainly attributed to the sudden emergence of the COVID-19 epidemic due to the pessimistic expectations from investors; China and U.S. stock market shared strongly negative correlation with the growing number of COVID-19 cases. At the second phase, the revitalization of stock market shared strong simultaneous moves but exhibited opposite responses to the COVID-19 impact on China and U.S. stock market; the former retained a significant negative correlation, while the latter turned to positively correlated throughout the period. At the third phase, the progress in vaccine development and economic stimulus began to impose forces to stock market; the vulnerability to COVID-19 diminished to some extent as the investor sentiment indexes rebounded. Finally, we attempted to initially establish a coarse-grained representation to stock market indexes and investor sentiment indexes, which demonstrated the homogenous spacial distribution in the vectorgraph after normalization and quantization, implying the strong consistency when filtering the frequent small fluctuations during the evolution of the COVID-19 pandemic, which might help insights into the prediction of possible status transition in stock market performance under the public health issues, potentially performing as the quantitative references in reasonably deducing the economic influences.

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COVID-19, stock market and sectoral contagion in US: a time-frequency analysis

Abstract: Graphical abstract

Cited by 53 publications

References 19 publications

On the Risk-based Contagion of G7 Banking System and the COVID-19 Pandemic

On the Risk-based Contagion of G7 Banking System and the COVID-19 Pandemic

Contagion and portfolio management in times of COVID-19

Quantifying Time-Frequency Co-movement Impact of COVID-19 on U.S. and China Stock Market Toward Investor Sentiment Index

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