The challenge of predicting currency crises: how do definition and probability threshold choice make a difference?

2021

Eurasian Econ Rev

The aim of the study is to assess the strength of the world stock exchanges reaction to the SARS-CoV-2 coronavirus pandemic at the turn of 2019–2020. We analyze the risk and intensity of the decline in the values of the basic stock indices by means of selected methods of survival analysis. The spreading pandemic within a few months covered all continents and had a significant impact on the socio-economic situation of all countries. We studied the time of the 20% drop in stock market indices. This is a value that is taken as a sign of a crisis. In order to assess the probability of indices’ value decrease, we use the Kaplan–Meier’s estimator. We determine the risk of decline by means of a logit model and the intensity of the decline by means of an empirical hazard estimator and the Cox proportional hazard model. The intensity and risk of the decline of stock indices varied from continent to continent. The obtained results show that the intensity is highest in the fourth and eighth week after the peak and is the highest on European exchanges and then American and Asian exchanges (including Australia). The risk of falling the stock indices’ prices is the highest in America, followed by Europe, Asia and Australia, and lowest in Africa. Half of the analyzed indices record a 20% drop in value after 52 days (median duration). The study is a prelude to further analyses related to the crisis and the normalization of the situation on world stock exchanges. It allows to learn about the impact of the pandemic on the economic situation and to detect the differences between the continents.

Section: Literature Reviewmentioning

confidence: 99%

A survival analysis in the assessment of the influence of the SARS-CoV-2 pandemic on the probability and intensity of decline in the value of stock indices

2021

Eurasian Econ Rev

“…The possibilities of identifying a crisis depended on its type. Emin and Aytac (2016) presented 20 different definitions of the currency crisis. They used, inter alia, the studies by Reinhart and Rogoff (2009), who assumed that a currency crisis occurred when the currency value fell by at least 15% during a year in comparison with the value of the USD (or other currency adopted as a country's reference).…”

Section: Literature Reviewmentioning

confidence: 99%

Evaluation of Changes on World Stock Exchanges in Connection with the SARS-CoV-2 Pandemic. Survival Analysis Methods

2021

Risks

The aim of our research was to compare the intensity of decline and then increase in the value of basic stock indices during the SARS-CoV-2 coronavirus pandemic in 2020. The survival analysis methods used to assess the risk of decline and chance of rise of the indices were: Kaplan–Meier estimator, logit model, and the Cox proportional hazards model. We observed the highest intensity of decline in the European stock exchanges, followed by the American and Asian plus Australian ones (after the fourth and eighth week since the peak). The highest risk of decline was in America, then in Europe, followed by Asia and Australia. The lowest risk was in Africa. The intensity of increase was the highest in the fourth and eleventh week since the minimal value had been reached. The highest odds of increase were in the American stock exchanges, followed by the European and Asian (including Australia and Oceania), and the lowest in the African ones. The odds and intensity of increase in the stock exchange indices varied from continent to continent. The increase was faster than the initial decline.

“…The identi cation of a crisis depends on its type. In their article Emin and Aytac (2016) presented 20 different de nitions of a currency crisis. They relied, among the others, on research by Reinhart and Rogoff (2009), who assumed that a currency crisis occurs when the value of a currency decreases by at least 15% during a year compared to the value of the dollar (or other currency accepted in a given country as a reference).…”

Section: Literature Reviewmentioning

confidence: 99%

Survival analysis in assessment of influence of the SARS-CoV-2 pandemic on probability and intensity of decline in the value of stock indices

2020

Preprint

The aim of the study is to assess the strength of the world stock exchanges reaction to the SARS-CoV-2 coronavirus pandemic at the turn of 2019-2020. The risk and intensity of the decline in the values of the basic stock indices were analysed. The spreading pandemic within a few months covered all continents and had a significant impact on the socio-economic situation of all countries. The study used methods of duration analysis. The time of the 20% drop in stock market indices was studied. This is a value that is taken as a sign of crisis. Kaplan-Meier's estimator was used to assess the probability of indices' value decrease. The risk of decline was determined by means of a logit model and the intensity of the decline was determined by means of an empirical hazard estimator and a Cox proportional hazard model. The intensity and risk of decline of stock indices varied from continent to continent. The intensity was highest in the fourth and eighth week after the peak and was highest on European exchanges and then American and Asian exchanges (including Australia). The risk of falling stock indices was highest in America, followed by Europe, Asia and Australia, and lowest in Africa. Half of the analysed indices recorded a 20-percent drop in value after 52 days (median duration). The study is a prelude to further analyses related to the crisis and the normalisation of the situation on world stock exchanges. It allows to learn about the impact of the pandemic on the economic situation and to detect differences between the continents. The methods from the survival analysis are used in the study to assess the impact of the pandemic on the intensity and risk of decline in stock exchange indices.