Examining the Asymmetric Impact of COVID-19 Pandemic and Global Financial Crisis on Dow Jones and Oil Price Shock

Abstract

COVID-19 has significantly affected the financial and commodity markets. The purpose of this investigation is to understand the impact of the COVID-19 crisis on Dow Jones and West Texas Intermediate (WTI) oil returns in relation to other crises using the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model. The results indicate that COVID-19 and the accompanying lockdown have adversely impacted both yields and that the impact on oil prices is more significant than on the Dow Jones index. The variance and squared residuals of oil prices and the Dow Jones reached their highest historical levels during the COVID-19 outbreak, even higher than during the global financial crisis, and especially the VaR of both markets reached their historical peak points during the COVID-19 era. The variance of WTI during COVID-19 is higher than that of DJI, as was also the case during the financial crisis. These findings confirm that COVID-19 has negatively impacted investors’ ability to determine optimal portfolios and thus the sustainability of financial and energy markets more than the global financial crisis of 2007–2009. We, therefore, suggest that policy changes are needed to maintain financial sustainability and help investors deal with future financial and other crises.

COVID-19 Vaccinations and the Volatility of Energy Companies in International Markets

“…For example, workplace closure and domestic travel limitations positively impact global energy returns, while cancellation of public events and public transport closures impose a negative effect. Shehzad et al (2021) compare the impact of COVID-19 on oil prices and the Dow Jones index in terms of returns and volatility. The negative impact is higher in magnitude on oil prices compared to the Dow Jones index.…”

Testing oil price volatility during Covid-19: Global economic impact

“…( Zhang and Hamori, 2021 ) revealed that the crude costs are accessible at everyday incidence. The preexisting research on exchange rate prediction applies every four weeks and every three months because macro market forces such as changes in prices of goods and services plus gross domestic product are solely accessible at these reduced incidences( Shehzad et al, 2021 ). ( Chatziantoniou et al, 2021a , Chatziantoniou et al, 2021b ) they proposed that the exchange rate forecastability significantly stayed at similar levels every four weeks and three months of incidence.…”

Tail Dependence between Crude Oil Volatility Index and WTI Oil Price Movements during the COVID-19 Pandemic

“…In the oil market, VaR can be used to quantify the maximum oil price change associated with a certain confidence level. The VaR of the oil market has increased more during the COVID-19 era than during the Global Financial Crisis [42], therefore we can expect that traditional statistical methods of risk measurement may not be appropriate to capture the risk with high accuracy. We assess how much the OVX can improve the VaR forecasts computed with the use of the statistical model.…”