Does CSR matter in times of crisis? Evidence from the COVID-19 pandemic

The debate over how firm stakeholder engagement is tied to preserving shareholder wealth has received growing attention in recent years, especially in the wake of the COVID-19 crisis. Against this backdrop, we examine the relation between corporate social responsibility (CSR) and stock market returns during the COVID-19 pandemic-induced market crash and the post-crash recovery. Using a sample of 1750 U.S. firms and two major sources of CSR ratings, we find no evidence that CSR affected stock returns during the crash period. This result is robust to various sensitivity tests. In additional cross-sectional analysis, we find some supporting evidence, albeit weak, that the relation between CSR and stock returns during the pandemic-related crisis is more positive when CSR is congruent with a firm's institutional environment. We also find that Business Roundtable companies, which committed to protecting stakeholder interests prior to the pandemic, do not outperform during the pandemic crisis. We conclude that pre-crisis CSR is not effective at shielding shareholder wealth from the adverse effects of a crisis, suggesting a potential disconnect between firms' CSR orientation (ratings) and actual actions. Our evidence suggests that investors can distinguish between genuine CSR and firms engaging in cheap talk.     

Fund ESG performance and downside risk: Evidence from China

Whether responsible investing reduces portfolio risk remains open to discussion. We study the relationship between ESG performance and downside risk at fund level in the Chinese equity mutual fund market. We find that fund ESG performance is positively associated with fund downside risk during the period between July 2018 and March 2021, and that the positive relationship weakens during the COVID-19 pandemic. We propose three channels through which fund ESG performance could affect fund downside risk: (i) the firm channel in which the risk-mitigation effect of portfolio firms’ good ESG practices could be manifested at fund level, (ii) the diversification channel in which the portfolio concentration of high ESG-rated funds could amplify fund downside risk, and (iii) the flow channel in which funds’ better ESG performance may attract greater investor flows that could reduce fund downside risk. We show evidence that the observed time-varying relationship between fund ESG performance and downside risk is driven by the relative force of the three channels.     

The impact of COVID-19 on the stock market crash risk in China

This study investigates the impact of the COVID-19 pandemic on the stock market crash risk in China. For this purpose, we first estimated the conditional skewness of the return distribution from a GARCH with skewness (GARCH-S) model as the proxy for the equity market crash risk of the Shanghai Stock Exchange. We then constructed a fear index for COVID-19 using data from the Baidu Index. Based on the findings, conditional skewness reacts negatively to daily growth in total confirmed cases, indicating that the pandemic increases stock market crash risk. Moreover, the fear sentiment exacerbates such risk, especially with regard to the impact of COVID-19. In other words, when the fear sentiment is high, the stock market crash risk is more strongly affected by the pandemic. Our evidence is robust for the number of daily deaths and global cases.     

The European Central Bank and green finance: How would the green quantitative easing affect the investors' behavior during times of crisis?

In July 2021, the European central bank (ECB) announced the application of new environmental criteria to purchase private assets as part of its Quantitative Easing (QE) program. Using a Bayesian VAR model with time varying parameters and stochastic volatility (TVP-BVAR-SV), we investigate the transmission of Green bond shocks to the stock market during the pre-and-post COVID-19 pandemic. We document a nonlinear relation between the green bonds and the green equities. Our findings suggest that the ECB's Green QE can drive investors towards green investment in the stock market through the green bond market during the non-crisis period. However, we show that the proper transmission of Green QE shocks to the stock market depends on the economic conditions and could not be effective during the crisis period. Our results also support previous findings that state the growing demand for sustainable investing after COVID-19. These findings have important implications for investment professionals, policymakers, and environmentally concerned actors.     

Exploring the relationship between cryptocurrencies and hedge funds during COVID-19 crisis

In this paper, we investigated the relationship between cryptocurrency market and hedge funds in two different ways. First, we focus on the dependence between Cryptocurrency hedge funds and conventional hedge funds strategies using VAR and VECM models, while analyzing the impact of COVID-19 on the hedge funds' values. Secondly, we choose between ARDL and ARDL-ECM models to study the effects of cryptocurrency price changes on Crypto- Currency hedge funds' values during COVID-19 crisis. Our empirical findings demonstrate that there is substantial interactions between Crypto-Currency and conventional hedge funds. The COVID-19 pandemic has significant negative impact on the performance of the following hedge funds: Event Driven, Relative Value and Distressed Debt fund strategies, this has reflected in a significant drop in their values during this critical period. However, we demonstrate that COVID-19 pandemic did not affect the relationship between crypto-currency hedge funds and both bitcoin and Ethereum. These findings hold profound implications for hedge funds managers, cryptocurrency market main players and policy makers. Our study is crucial in forecasting the performance of these markets especially during global pandemics.     

新冠肺炎疫情对发展中国家与新兴经济体包容性增长的影响研究

新冠肺炎疫情对全球经济发展造成巨大冲击,尤其给发展中国家与新兴经济体的包容性增长带来严重影响。本文通过分析新冠肺炎疫情对发展中国家和新兴经济体包容性增长的影响,总结发展中国家和新兴经济体在疫情冲击下的宏观经济政策,发现疫情对发展中国家与新兴经济体包容性增长产生的严重冲击主要包括经济遭受重创、贫困人口大幅反弹、收入不平等加剧和失业率上升等。基于此,提出发展中国家与新兴经济体要通过强化疫情防控、多种政策工具协同发力和加大对弱势群体的帮扶力度等措施,减弱疫情的影响,促进包容性增长。     

Tail risk contagion between international financial markets during COVID-19 pandemic

In this paper, we combine the time-varying financial network model and FARM-selection approach to analyze the tail risk contagion between international financial market during the COVID-19 epidemic. Since the tail risk acts as a global transmission channel, we use the sample of 19 international financial markets to explore the contagion of tail risk during the epidemic. We find that the COVID-19 epidemic increases the number of contagion channels in the international financial system. The clustering level of the financial system has a significant growth during the COVID-19 pandemic, and the number of risk drivers is also larger than risk takers. The key financial market of each international financial network is related to the epidemic country. We also consider the tail risk contagion in local financial markets and find that the COVID-19 pandemic has an important influence on the tail risk contagions in local network systems     

The 2008 global financial crisis and COVID-19 pandemic: How safe are the safe haven assets?

We compare the performance of safe-haven assets during the Global Financial Crisis (GFC) and COVID-19 pandemic. First, regarding the GFC, we find, intermediate (weak) safe haven evidence for US dollar, Swiss franc and T-bonds (Gold, Silver and T-bills). Second, with regard to COVID, we find gold is very risky in some settings, while silver has become extremely risky. Collectively, our findings suggest that the character of safe-haven assets has changed between the crises. Therefore, investors should exercise extreme care when investing in potential safe-haven assets during times of market stress.     

Stock markets’ reaction to COVID-19: Cases or fatalities?

In this paper, we examine the stock markets’ response to the COVID-19 pandemic. Using daily COVID-19 confirmed cases and deaths and stock market returns data from 64 countries over the period January 22, 2020 to April 17, 2020, we find that stock markets responded negatively to the growth in COVID-19 confirmed cases. That is, stock market returns declined as the number of confirmed cases increased. We further find that stock markets reacted more proactively to the growth in number of confirmed cases as compared to the growth in number of deaths. Our analysis also suggests negative market reaction was strong during early days of confirmed cases and then between 40 and 60 days after the initial confirmed cases. Overall, our results suggest that stock markets quickly respond to COVID-19 pandemic and this response varies over time depending on the stage of outbreak.     

Evidence of oil market price clustering during the COVID-19 pandemic

We use hourly data on opening price, closing price, opening ask price, opening bid price, closing ask price and closing bid price to show that while oil prices are characterized by price clustering behavior, prices tend to cluster on numbers closer to zero than to one. Comparing the pre-COVID-19 sample with the COVID-19 sample, we find that evidence of price clustering is 8% more in the COVID-19 sample. We test the determinants of price clustering and find that as much as 30% of the price clustering behavior can be attributed to the COVID-19 pandemic. Finally, using a simple technical trading strategy, we do not find any evidence that the oil market is profitable in the COVID-19 period.     

Leverage causes fat tails and clustered volatility

We build a simple model of leveraged asset purchases with margin calls. Investment funds use what is perhaps the most basic financial strategy, called ‘value investing’, i.e. systematically attempting to buy underpriced assets. When funds do not borrow, the price fluctuations of the asset are approximately normally distributed and uncorrelated across time. This changes when the funds are allowed to leverage, i.e. borrow from a bank, which allows them to purchase more assets than their wealth would otherwise permit. During good times, funds that use more leverage have higher profits, increasing their wealth and making them dominant in the market. However, if a downward price fluctuation occurs while one or more funds is fully leveraged, the resulting margin call causes them to sell into an already falling market, amplifying the downward price movement. If the funds hold large positions in the asset, this can cause substantial losses. This in turn leads to clustered volatility: before a crash, when the value funds are dominant, they damp volatility, and after the crash, when they suffer severe losses, volatility is high. This leads to power-law tails, which are both due to the leverage-induced crashes and due to the clustered volatility induced by the wealth dynamics. This is in contrast to previous explanations of fat tails and clustered volatility, which depended on ‘irrational behavior’, such as trend following. A standard (supposedly more sophisticated) risk control policy in which individual banks base leverage limits on volatility causes leverage to rise during periods of low volatility, and to contract more quickly when volatility becomes high, making these extreme fluctuations even worse.     

When bitcoin lost its position: Cryptocurrency uncertainty and the dynamic spillover among cryptocurrencies before and during the COVID-19 pandemic

This paper examines the dynamic spillovers among the major cryptocurrencies under different market conditions and accounts for the ongoing COVID-19 health crisis. We also investigate whether cryptocurrency policy (CCPO) uncertainty and cryptocurrency price (CCPR) uncertainty affect the dynamic connectedness. We adopt the Quantile-VAR approach to capture the left and right tails of the distributions corresponding to return spillovers under different market conditions. Generally, cryptocurrencies show heterogeneous responses to the occurrence of the COVID-19 pandemic. We find that the total spillover index (TCI) varies across quantiles and rises widely during extreme market conditions, with a noticeable impact of the COVID-19 pandemic. Bitcoin lost its position as a dominant “hedger” during the health crisis, while Litecoin became the most dominant “hedger” and/or “safe-haven” asset before and during the pandemic period. Moreover, our analysis shows a significant impact of market uncertainties on total and net connectedness among the five cryptocurrencies. We argue that the COVID-19 pandemic crisis plays a vital role on the relationship between CCPO as well as CCPR and the dynamic connectedness across all market conditions.     

Dealer Markets Under Stress: The Performance of NASDAQ Market Makers During the November 15, 1991, Market Break

The liquidity of the NASDAQ market was seriously undermined during the crash on October 19, 1987, when bid-ask spreads widened dramatically and dealers reputedly withdrew from market making. This paper studies the liquidity of 36 NASDAQ issues on November 15, 1991, when average prices fell over 4%, representing the first major correction in the post-crash era. We find that bid-ask spreads, the percentage of dealers posting inside quotes, and trading volume remained virtually unaffected. Effective spreads were also largely unaffected, except for trades in excess of 1,000 shares among issues whose market makers avoided odd-eighth quotes. Our evidence implies that, unlike October 1987, the liquidity of the NASDAQ market did not deteriorate appreciably during this episode of unusual market stress.     

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.     

Gold and US sectoral stocks during COVID-19 pandemic

In this study, we examine the hedging relationship between gold and US sectoral stocks during the COVID-19 pandemic. We employ a multivariate volatility framework, which accounts for salient features of the series in the computation of optimal weights and optimal hedging ratios. We find evidence of hedging effectiveness between gold and sectoral stocks, albeit with lower performance, during the pandemic. Overall, including gold in a stock portfolio could provide a valuable asset class that can improve the risk-adjusted performance of stocks during the COVID-19 pandemic. In addition, we find that the estimated portfolio weights and hedge ratios are sensitive to structural breaks, and ignoring the breaks can lead to overestimation of the hedging effectiveness of gold for US sectoral stocks. Since the analysis involves sectoral stock data, we believe that any investor in the US stock market that seeks to maximize risk-adjusted returns is likely to find the results useful when making investment decisions during the pandemic.     

Performance,stock selection and market timing of the German equity mutual fund industry

We investigate the performance of the German equity mutual fund industry over 20 years (monthly data 1990–2009) using the false discovery rate (FDR) to examine both model selection and performance measurement. When using the Fama–French three factor (3F) model (with no market timing) we find that at most 0.5% of funds have truly positive alpha-performance and about 27% have truly negative-alpha performance. However, the use of the FDR in model selection implies inclusion of market timing variables and this results in a large increase in truly positive alpha funds. However, when we use a measure of “total” performance, which includes the contribution of both security selection (alpha) and market timing, we obtain results similar to the 3F model. These results are largely invariant to different sample periods, alternative factor models and to the performance of funds investing in German and non-German firms — the latter casts doubt on the ‘home-bias’ hypothesis of superior performance in ‘local’ markets.     

World equity markets and COVID-19: Immediate response and recovery prospects

Following the spread of the COVID-19 pandemic, most global equity market indices experienced significant falls. Recognizing the severe economic impacts of the pandemic, starting from mid-March, many governments announced unprecedented economic rescue packages, which appear to restore investors’ confidence, given the recoveries recorded in most stock markets. However, the recovery performance significantly varies across countries. This paper provides an empirical analysis on what may explain this variation in the recovery performance observed in equity markets across countries. We find that among different types, fiscal stimulus supports seem to be strongly and positively associated with higher recovery that may justify more targeted fiscal supports for the real sector firms to restore investors’ confidence. We also find that the severity of the outbreak, reliance more on natural resource and tourism revenues are negatively associated with countries’ stock market recovery performance.     

When the Japanese stock market meets COVID-19: Impact of ownership,China and US exposure,and ESG channels

We identify factors affecting the Japanese stock market during the COVID-19 pandemic period. First, we focus on the ownership structure. We find that indirect ownership through the exchange-traded fund purchasing program by the Bank of Japan has a positive impact on abnormal returns. Foreign ownership is negatively associated with abnormal returns, whereas ownership by traditional business groups is positively associated with abnormal returns. Second, we examine the impact of global value chains and find that stock returns are lower for companies with China and U.S. exposure. Third, in terms of environmental, social, and governance (ESG) engagement, there is no evidence that firms that have highly rated ESG scores have higher abnormal returns, but firms with ESG funds outperform those without.     

Bitcoin’s price efficiency and safe haven properties during the COVID-19 pandemic: A comparison

As the COVID-19 outbreak became a global pandemic, traditional financial market indicators were significantly affected. We examine the price efficiency and net cross-correlations among Bitcoin, gold, a US dollar index, and the Morgan Stanley Capital International World Index (MSCI World) during the four months after the World Health Organization officially designated COVID-19 as a global pandemic. Using intraday data, we find that Bitcoin prices were more efficient than the US dollar and MSCI World indices. Using a detrended partial-cross-correlation analysis, our results show that net cross-correlations vary across time scales. Our results suggest that when the time scale is greater than two months, gold can be considered as a safe haven for investors holding the MSCI World and US dollar indices and when the time scale exceeds three months, Bitcoin can be considered a safe haven for the MSCI World index.     

Diversifying equity with cryptocurrencies during COVID-19

Literature suggests assets become more correlated during economic downturns. The COVID-19 crisis provides an unprecedented opportunity to investigate this considerably further. Further, whether cryptocurrencies provide a diversification for equities is still an unsettled issue. We employ several econometric procedures, including wavelet coherence, and neural network analyses to rigorously examine the role of COVID-19 on the paired co-movements of four cryptocurrencies, with seven equity indices (matching countries particularly impacted by COVID-19). Our period of study includes one year prior to the onset of COVID-19, and one year during the pandemic, extending deeper into the pandemic period (February 2021) than most previous studies. We find co-movements between cryptocurrencies and equity indices gradually increased as COVID-19 progressed. However, most of these co-movements are either modestly positively correlated, or minimal, suggesting cryptocurrencies in general do not provide a diversification benefit during either normal times or downturns. An exception, however, is the co-movement of tether. Tether co-moves negatively with equities to an economically significant degree, both pre COVID-19, and considerably more during COVID-19. Co-movements between tether and equity indices spiked sharply during identified waves of the pandemic. Tether appears to be an important safe haven during times of market turmoil, consistent with investors seeking USD liquidity during periods of volatility.