Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?

Abstract

This study investigates the dynamic connectedness between stock indices and the effect of economic policy uncertainty (EPU) in eight countries where COVID-19 was most widespread (China, Italy, France, Germany, Spain, Russia, the US, and the UK) by implementing the time-varying VAR (TVP-VAR) model for daily data over the period spanning from 01/01/2015 to 05/18/2020. Results showed that stock markets were highly connected during the entire period, but the dynamic spillovers reached unprecedented heights during the COVID-19 pandemic in the first quarter of 2020. Moreover, we found that the European stock markets (except Italy) transmitted more spillovers to all other stock markets than they received, primarily during the COVID-19 outbreak. Further analysis using a nonlinear framework showed that the dynamic connectedness was more pronounced for negative than for positive returns. Also, findings showed that the direction of the EPU effect on net connectedness changed during the pandemic onset, indicating that information spillovers from a given market may signal either good or bad news for other markets, depending on the prevailing economic situation. These results have important implications for individual investors, portfolio managers, policymakers, investment banks, and central banks.

The Impact of the SARS-CoV-19 Pandemic on the Global Gross Domestic Product

“…As research in the healthcare perspective is starting to yield significant effects, it is now time to focus our attention on the economy and the significant consequences the pandemic has had in this context. A number of scholars have already studied the impact of the global health crisis on financial markets whose sharp fluctuations during the pandemic have led to confusion and uncertainty among investors [14][15][16]. Results reported by other researchers indicate that the SARS-CoV-19 pandemic has changed consumer behaviors [17].…”

COVID-19 Pandemic and Romanian Stock Market Volatility: A GARCH Approach

“…Chowdhury et al (2021) claimed that European financial markets were the most terrible victim related to others. In the same vein, Youssef et al (2021) noticed that European equity markets, excepting Italy, spread more spillovers to the whole other financial markets than they obtained, mainly through the coronavirus outburst. Szczygielski et al (2021b) showed that pandemic insecurity has affected nearly all territories via smaller returns and heightened market volatility.…”

“…In order to analyze the causality between the BET index and the number of new COVID-19 cases, we will estimate in the first instance three vector autoregression (VAR) models, much like those found in Anser et al (2021), Chen et al (2021), Chowdhury et al (2021), and Youssef et al (2021), incorporating the stock market index and each COVID-19 pandemic measure, as described below:…”

“…Prior papers were focused on volatility examination for African equity markets (Lo et al 2021;Takyi and Bentum-Ennin 2021;Zoungrana et al 2021), the Australian stock market (Brueckner and Vespignani 2021), BRICS and G7 states (Yu et al 2021), Canada and the US (Xu 2021), the Chinese stock market (Chen et al 2021;Liu et al 2021b;Shahzad et al 2021), seven emerging countries (Hashmi et al 2021), euro area stock markets (Duttilo et al 2021), the Indian financial market (Bora and Basistha 2021), the South Korea stock market (Hoshikawa and Yoshimi 2021), Thailand (Hongsakulvasu et al 2020), the Tunisian sectorial stock market (Fakhfekh et al 2021), the US stock market (Curto and Serrasqueiro 2021;Hong et al 2021), Vietnam and Philippines (Le and Tran 2021), Visegrad Group member states (Czech et al 2020), or several international markets (Al-Najjar et al 2021;Al-Qudah and Houcine 2021;Anser et al 2021;Banerjee 2021;Chowdhury et al 2021;Contessi and Pace 2021;Engelhardt et al 2021;Höhler and Lansink 2021;Rouatbi et al 2021;Szczygielski et al 2021b;Topcu and Gulal 2020;Vera-Valdés 2021;Youssef et al 2021;Zhang et al 2020). This paper aims to examine the volatility throughout the Romanian financial market during the COVID-19 pandemic.…”

Economic impact of COVID-19 pandemic: case of Bulgaria

“…Since now, the scientific literature has not given significant proves for the real economic effects of the COVID-19 pandemic measures. There are good researches on the financial and stock-exchange markets [1][2][3] as well as on employment and staff changes on the micro-level [4][5][6]. Generally, the researches cover the fast moving sectors that are highly dependent by the COVID-19 restriction measures as: economy lock-down and on-line employment, travel shortage and tourism cut-off, transport routs cut-down and supply chains change, individuals uncertainty and financial market change and etc.…”