Have the predictability of oil changed during the COVID-19 pandemic: Evidence from international stock markets

The COVID-19 has undoubtfully brought fierce shocks to the real economic activities, financial market and public lives. Under this special condition, this study explores whether the predictability of crude oil futures information has changed before and during the COVID-19 pandemic for 19 international stock markets. From an in-sample perspective, we find that the crude oil futures RV can significantly affect future stock volatility for each equity index except SSEC. Moreover, the out-of-sample results from statistic and economic perspective reveal that crude oil futures RV is a more efficient predictor during the COVID-19 pandemic compared with the pre-crisis period. Furthermore, we find that the predictability of crude oil futures information is stronger from March to May 2020, when the epidemic is seriously prevailing. The empirical results from alternative evaluation method, recursive window method, alternative realized measures, controlling VIX and the seasonal effect, asymmetric forecasting window and different testing windows are robust and consistent. Our findings could offer novel and significant policy and practical implications.     

Crude oil market and stock markets during the COVID-19 pandemic: Evidence from the US,Japan, and Germany

We analyzed the return and volatility spillover between the COVID-19 pandemic in 2020, the crude oil market, and the stock market by employing two empirical methods for connectedness: the time-domain approach developed by Diebold and Yilmaz (2012) and the method based on frequency dynamics developed by Barunik and Krehlik (2018). We find that the return spillover mainly occurs in the short term; however, the volatility spillover mainly occurs in the long term. From the moving window analysis results, the impact of COVID-19 created an unprecedented level of risk, such as plummeting oil prices and triggering the US stock market circuit breaker four times, which caused investors to suffer heavy losses in a short period. Furthermore, the impact of COVID-19 on the volatility of the oil and stock markets exceeds that caused by the 2008 global financial crisis, and continues to have an effect. The impact of the COVID-19 pandemic on financial markets is uncertain in both the short and long terms. Our research provides some urgent and prominent insights to help investors and policymakers avoid the risks in the crude oil and stock markets because of the COVID-19 pandemic and reestablish economic development policy strategies.     

Asymmetry in spillover effects: Evidence for international stock index futures markets

The paper investigates the asymmetry in return and volatility spillovers across futures markets with non-overlapping stock exchange trading hours. The transmission of positive and negative return and volatility shocks is analysed for 104 channels of information conveyance identified by combining 9 developed and 11 emerging markets in markets pairs with non-overlapping trading hours. The asymmetric causality test is employed to daily stock index futures returns and volatilities for the period from 03 October 2010 to 03 October 2014. The paper sheds light on the relatively little explored concept of asymmetry in return and volatility spillovers across markets, providing novel evidence on stabilizing and destabilizing spillover effects.     

COVID-19 and time-frequency connectedness between green and conventional financial markets

Against the backdrop of the exponentially growing trend in green finance investments and the calls for green recovery in the post-COVID world, this study presents the time-frequency connectedness between green and conventional financial markets by using the spillover models of Diebold and Yilmaz (2012) and Baruník and Křehlík (2018). Covering a sample period from January 01, 2008, to July 31, 2020, we aim to explore the dynamics of connectedness between conventional and green investments in fixed income, equity, and energy markets. Additionally, we determine the role of market-wide uncertainty in altering the connectedness structure by performing a subsample analysis for the ongoing COVID-19 pandemic crisis period. Our results show that competing energy investments are not connected, and there is only one-way spillovers from the conventional bonds in the fixed-income investments. Additionally, we observe a low (high) intergroup connectedness for conventional (green) investments. Moreover, the frequency-based analysis shows that connectedness between these competing markets is more pronounced during the short-run. The subsample analysis for the pandemic crisis period shows similar results except for the disconnection between bond markets in the short-run frequency. Our time-varying analysis shows peaks and troughs in the connectedness between climate-friendly and conventional investments that suggest different global events such as the Eurozone Debt Crisis and Shale Oil Revolution drives the association between alternate investments. Similarly, we observe an enhanced connectedness during the recent COVID-19 period, suggesting that financial stability would be a significant factor in determining the smooth transition to green investments.     

Relationship between gold and stock markets during the global financial crisis: Evidence from nonlinear causality tests

This paper investigates the nonlinear dynamic co-movements between gold returns, stock market returns and stock market volatility during the recent global financial crisis for the UK (FTSE 100), the US (S&P 500) and Japan (Nikkei 225). Initially, the bivariate dynamic relationships between i) gold returns and stock market returns and ii) gold returns and stock market volatility are tested; both of these relationships are further investigated in the multivariate nonlinear settings by including changes in the three-month LIBOR rates. In this paper correlation integrals based on the bivariate model show significant evidence of nonlinear feedback effect among the variables during the financial crisis period for all the countries understudy. Very limited evidence of significant feedback is found during the pre-crisis period. Results from the multivariate tests including changes in the LIBOR rates provide results similar to the bivariate results. These results imply that gold may not perform well as a safe haven during the financial crisis period due to the bidirectional interdependence between gold returns and, stock returns as well as stock market volatility. However, gold may be used as a hedge against stock market returns and volatility in stable financial conditions.     

Covid-19 pandemic and spillover effects in stock markets: A financial network approach

This paper examines the impact of the COVID-19 pandemic on 51 major stock markets, both emerging and developed. We isolated the countries susceptible to shock transmissions, and evaluated countries with immunity, during the lockdown. Specifically, using dependence dynamics and network analysis on a bivariate basis, we identify volatility and contagion risk among stock markets during the COVID-19 pandemic. The empirical findings add to the existing body of literature, given that previous work has not placed emphasis on network topologic metrics when it comes to financial networks, specifically during the COVID-19. The evidence shows instant financial contagion a result of the lockdown and the spread of the novel coronavirus. The methodological framework outlines important information for investors and policymakers on using financial networks to improve portfolio selection, by placing an emphasis on assets according to centrality.     

Asymmetric nexus between COVID-19 outbreak in the world and cryptocurrency market

In the wake of recent pandemic of COVID-19, we explore its unprecedented impact on the cryptocurrencies' market. Specifically, we check how the changing intensity of the COVID-19 represented by the daily addition in new infections worldwide affects the daily returns of the top 10 cryptocurrencies according to the market capitalization. The results from Quantile-on-Quantile Regression (QQR) approach reveal that the changing intensity levels of the COVID-19 affect the Bearish and the Bullish market scenarios of cryptocurrencies differently (asymmetric impact). Additionally, there are differences between these currencies in their responses to the changing levels of this pandemic's intensity. Most of the currencies absorbed the small shocks of COVID-19 by registering positive gains but failed to resist against the huge changes except Bitcoin, ADA, CRO, and up to some extent Ethereum. Our results reveal new and asymmetric dynamics of this emerging asset class against an extremely stressful and unpredictable event (COVID-19). Moreover, these results are robust to the use of alternative proxy (COVID-19 deaths) for pandemic intensity. Our findings help to improve investors and policymakers' understanding of the cryptocurrencies' market dynamics, especially in the times of extremely stressful and unseen events.     

Constructing a positive sentiment index for COVID-19: Evidence from G20 stock markets

The present study investigates the degree of market responses through the scope of investors' sentiment during the COVID-19 pandemic across G20 markets by constructing a novel positive search volume index for COVID-19 (COVID19⁺). Our key findings, obtained using a Panel-GARCH model, indicate that an increased COVID19⁺ index suggests that investors decrease their COVID-19 related crisis sentiment by escalating their Google searches for positively associated COVID-19 related keywords. Specifically, we explore the predictive power of the newly constructed index on stock returns and volatility. According to our findings, investor sentiment positively (negatively) predicts the stock return (volatility) during the COVID-19. This is the first study assessing global sentiment by proposing a novel proxy and its impacts on the G20 equity market.     

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

We assess the conditional relationship in the time-frequency domain between the return on S&P 500 and confirmed cases and deaths by COVID-19 in Hubei, China, countries with record deaths and the world, for the period from January 29 to June 30, 2020. Methodologically, we follow Aguiar-Conraria et al. (2018), by using partial coherencies, phase-difference diagrams, and gains. We also perform a parametric test for Granger-causality in quantiles developed by Troster (2018). We find that short-term cycles of deaths in Italy in the first days of March, and soon afterwards, cycles of deaths in the world are able to lead out-of-phase US stock market. We find that low frequency cycles of the US market index in the first half of April are useful to anticipate in an anti-phasic way the cycles of deaths in the US. We also explore sectoral contagion, based on dissimilarities, Granger causality and partial coherencies between S&P sector indices. Our findings, such as the strategic role of the energy sector, which first reacted to the pandemic, or the evidence about predictability of the Telecom cycles, are useful to tell the history of the pass-through of this recent health crises across the sectors of the US economy.     

Effects of investor sentiment and country governance on unexpected conditional volatility during the COVID-19 pandemic: Evidence from global stock markets

This paper first investigates the relationship between investor sentiment, captured by internet search behaviour, and the unexpected component of stock market volatility during the COVID-19 pandemic. According to data on 12 major stock markets, our research indicates a positive correlation between the Google search volume index on COVID-19 and the unexpected volatility of stock markets. The result suggests that greater COVID-19-related investor sentiment during this pandemic is associated with higher stock market uncertainty.Our study further examines whether country-level governance plays a role in protecting stock markets during this pandemic and reveals that the unexpected conditional volatility is lower when a country's governance is more effective. The impact of investor sentiment and country governance on unexpected volatility after the initial shock of COVID-19 is also investigated. The findings demonstrate the importance of establishing good country-level governance that can effectively reduce stock market uncertainty in the context of this pandemic, and support continual policy development related to investor protection.     

Dynamic correlations and hedging effectiveness between gold and stock markets: Evidence for BRICS countries

This paper examines the dynamic relationships between gold and stock markets using data for the BRICS counties. For this purpose, we estimate the Asymmetric DCC model for weekly stock and gold data. Our main objective is to examine the time-varying correlations between the two assets and to check the effectiveness of gold as a hedge for equity markets. The empirical results reveal that the dynamic conditional correlations switch between positive and negative values over the period under study. These correlations are low to negative during the major financial crises suggesting that gold can act as a safe haven against extreme market movements. We also evaluate the implications for portfolio diversification and hedging effectiveness for the gold/stock pairs. Our findings suggest that adding gold to a stock portfolio enhances its risk-adjusted return.     

Dynamic spillover effects among green bond,renewable energy stocks and carbon markets during COVID-19 pandemic: Implications for hedging and investments strategies

This study has been inspired by the emergence of socially responsible investment practices in mainstream investment activity as it examines the transmission of return patterns between green bonds, carbon prices, and renewable energy stocks, using daily data spanning from 4th January 2015 to 22nd September 2020. In this study, our dataset comprises the price indices of S&P Green Bond, Solactive Global Solar, Solactive Global Wind, S&P Global Clean Energy and Carbon. We employ the TVP-VAR approach to investigate the return spillovers and connectedness, and various portfolio techniques including minimum variance portfolio, minimum correlation portfolio and the recently developed minimum connectedness portfolio to test portfolio performance. Additionally, a LASSO dynamic connectedness model is used for robustness purposes. The empirical results from the TVP-VAR indicate that the dynamic total connectedness across the assets is heterogeneous over time and economic event dependent. Moreover, our findings suggest that clean energy dominates all other markets and is seen to be the main net transmitter of shocks in the entire network with Green Bonds and Solactive Global Wind, emerging to be the major recipients of shocks in the system. Based on the hedging effectiveness, we show that bivariate and multivariate portfolios significantly reduce the risk of investing in a single asset except for Green Bonds. Finally, the minimum connectedness portfolio reaches the highest Sharpe ratio implying that information concerning the return transmission process is helpful for portfolio creation. The same pattern has been observed during the COVID-19 pandemic period.     

Short-selling,margin-trading,and stock liquidity: Evidence from the Chinese stock markets

This paper examines the impacts of two forms of leveraged trading—margin trading and short selling—on the trading liquidity of individual stocks in China. We find that trading liquidity for relevant stocks generally improves after restrictions on leveraged trading are removed. However, margin trading and short selling have opposite impacts on liquidity. During ordinary periods, margin trading benefits liquidity, whereas short selling damages liquidity; however, during market downturns, their roles are reversed. We also provide evidence suggesting that short sellers are informed traders in China and that short selling reduces stock liquidity because of the increased risk of adverse selection faced by uninformed traders.     

COVID-19 and stock returns: Evidence from the Markov switching dependence approach

This paper aims to investigate the regime-switching and time-varying dependence between the COVID-19 pandemic and the US stock markets using a Markov-switching framework. It makes two contributions to the empirical literature by showing that: (a) the variations of the daily reported COVID-19 cases and cumulative COVID-19 deaths induced asymmetric lower (left) and upper (right) tail dependence with the stock markets, and its left and right tail dependence exhibited significant time-varying trends; and (b) the left and right tail dependence between the stock markets and the pandemic exhibited significant regime-switching behaviours, with its switching probabilities in the higher tail dependence stage all being greater than in the lower tail dependence stage after 1 December 2019. Moreover, given that there is concurrent but significant financial market reaction to any unexpected emergence of a transmittable respirational disease or a natural calamity, the outcomes have some vital implications to market players and policymakers.     

Substitution or complementary effects between banking and stock markets: Evidence from financial openness in Taiwan

This study uses quarterly data from 1973 to 2007 to investigate the influence of financial institutions on economic growth in Taiwan. We find that the breakpoint obtained by Gregory and Hansen (1996) appears in the third quarter of 1982, which coincides with the period of financial openness. In addition, the substitution effect between credit and equity markets is improved following financial openness. The negative impact of volatility on real output before financial openness turned positive after financial openness, suggesting that appropriate volatility enhances Taiwan's economic growth under the circumstance of more matured stock market following financial openness. However, the beneficial influence of liquidity on real output before financial openness turned negative afterward, suggesting openness generated the undesirable side effect of excess liquidity that impeded economic growth. Our long-run results are essentially the same even if we take the role of the private bond market into account.     

COVID-19 pandemic,oil prices,stock market,geopolitical risk and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach

In this paper, we analyze the connectedness between the recent spread of COVID-19, oil price volatility shock, the stock market, geopolitical risk and economic policy uncertainty in the US within a time-frequency framework. The coherence wavelet method and the wavelet-based Granger causality tests applied to US recent daily data unveil the unprecedented impact of COVID-19 and oil price shocks on the geopolitical risk levels, economic policy uncertainty and stock market volatility over the low frequency bands. The effect of the COVID-19 on the geopolitical risk substantially higher than on the US economic uncertainty. The COVID-19 risk is perceived differently over the short and the long-run and may be firstly viewed as an economic crisis. Our study offers several urgent prominent implications and endorsements for policymakers and asset managers.     

Risk,return, and liquidity during Ramadan: Evidence from Indonesian and Malaysian stock markets

Indonesia and Malaysia are common in religion; however, the two countries have different developments in their equity markets. This study investigates the risk, return, and liquidity during Ramadan for the Indonesia and Malaysia stock markets. We find that the volatility is higher around Ramadan for the Indonesia stock market, while displays dynamic patterns in different phases around the month of Ramadan for Malaysia. Despite the changing risk during Ramadan, the risk-adjusted return remains unchanged. Furthermore, this study finds that the liquidity in most stock index markets of the two countries is higher around Ramadan. These findings support the notion that Ramadan affects investors’ risk-taking attitude and facilitates the trade in stocks.     

Disruption and stock markets: Evidence from Hong Kong

We examine the impact of disruption on stock markets using the 2019 Hong Kong protests for identification. We find that greater protest intensity corresponds to higher bid–ask spreads, lower trading volume, and greater return volatility for dual-listed Chinese firms’ Hong Kong (H) shares but not their home (A) shares. We also document negative abnormal returns only for these firms’ H-shares around major protest events, which shortly after exhibit reversal. Next, we validate our main findings by documenting similar results using Hong Kong-listed firms only. Overall, we provide new evidence highlighting the impact of protest-induced disruption on financial markets.     

Impact of COVID-19 on stock market efficiency: Evidence from developed countries

This study investigates the impact of the novel coronavirus (COVID-19) pandemic on stock market efficiency for six hard-hit developed countries, namely, the United States (US), Spain, the United Kingdom (UK), Italy, France, and Germany. Applying the wild bootstrap automatic variance ratio test on daily stock market data from July 29, 2019 to January 25, 2021, it is found that all stock markets used in this study deviate from market efficiency during some periods of the pandemic. Deviations from market efficiency are seen more in the stock markets of the US and UK during the COVID-19 outbreak than in other stock markets. These results are strengthened when a different econometric method, the automatic portmanteau test, is used. The findings of this study indicate an increasing chance for stock price predictions and abnormal returns during the COVID-19 pandemic.     

Risk spillovers from China's and the US stock markets during high-volatility periods: Evidence from East Asianstock markets

This paper studies cross-country risk spillovers through C-vine copula quantile regression. We find Both China's and the US markets can result in large risk spillovers to East Asian markets. Furthermore, their significant conditional spillovers indicate they can emit risk through an intermediary market. However, their distinctive dependency structures with East Asian markets reflect their differences in spillovers to the markets in magnitude. The risk spillovers from US are stronger than China in magnitude. Moreover, the risk spillover from China's stock market during its high-volatility period is weaker than the whole period, which is contrary to the US market. It may imply Chinese financial influences gradually increase with Chinese financial liberalization and regional integration. Our results have implications for macroprudential regulators adopt the effective supervision and regulation to deal with the cross-border risk spillovers, and for international investors in risk hedging, derivative valuation and investment.