Infectious disease (COVID-19)-related uncertainty and the safe-haven features of bonds markets

Abstract

Purpose This study aims to examine the hedge, diversifier and safe-haven properties of bonds against infectious disease-related equity market volatility (IDEMV), like COVID-19.Design/methodology/approach The authors apply wavelet coherence methodology on the daily data of IDEMV and bond market (US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and Europe) indices from 1 January 2000 to 14 February 2021.Findings The results show no significant co-movement between these bond indices and IDEMV, thus confirming that they serve as a hedge against IDEMV. However, during the turbulent period like COVID-19, the authors find that the US, UK, Japan, Switzerland, Canada, Australia, Sweden, China and European bond markets act as safe-haven against IDEMV, whereas the UK, US, Japan and Canadian bond markets demonstrate an in-phase and positive co-movement with IDEMV during COVID-19, suggesting their role as a diversifier.Research limitations/implications The study findings are important for investors and portfolio managers regarding risk management, portfolio diversification and investment strategies.Originality/value The authors contribute to the fast growing body of work on the financial impacts of COVID-19 as well as to ongoing consideration of whether a bond is a safe-haven investment.

Connectedness of COVID vaccination with economic policy uncertainty, oil, bonds, and sectoral equity markets: evidence from the US

“…The empirical findings are expected to define the role of vaccination policy in countering economic issues and volatility in important financial sectors of the US economy. Several studies apply the wavelet approach for the connectedness between various markets (Choi et al, 2020 ; Tiwari et al, 2019 ; Ali et al, 2022 ; Umar et al, 2021d ; Gubareva et al, 2022b ).…”

How does the crisis of the COVID-19 pandemic affect the interactions between the stock, oil, gold, currency, and cryptocurrency markets?

“…The fourth approach utilizes wavelet coherence methodology to approximately measure the correlation between two assets on the time and frequency domain by observing the variation of color in the wavelet coherence figure. By observing the direction of the arrow, this approach can determine whether two assets have a positive relationship or negative correlation in the time and frequency domain [see (32)(33)(34)]. Hence, this approach can't give a statistically significant result of correlation owing to only illustrating a qualitative analysis of the correlation across the time and frequency by using the color images.…”

Working online or offline during COVID-19: Which has more impacts on stock price?

“…But the negative impact of COVID-19 on emerging stock markets has gradually fallen and begun to taper off by mid-April, 2020 ( Topcu and Gulal, 2020 ). With regard to the literature exploring safe havens during the COVID-19 crisis, previous papers mainly explore the return and volatility transmission in different financial markets, such as the cryptocurrency markets ( Yousaf and Ali, 2020 ), gold markets ( Salisu et al, 2021 ), bond markets ( Ali et al, 2022 ), and metal and energy markets ( Yousaf, 2021 ). These studies show that COVID-19 influences information transmission in different markets.…”