PurposeThis study aims to observe the extent of asset diversification benefits in the Association of Southeast Asian Nations (ASEAN)-5 market by examining the effect of financial integration (FI) and financial development (FD) on domestic stock–bond co-movements, SBcorr.Design/methodology/approachThe dynamic conditional correlation - multivariate generalized autoregressive conditional heteroskedasticity (DCC-MGARCH) technique is adopted to construct FI and stock−bond co-movement variables. Then, the study uses static panel data analysis to examine the effect of FI on stock−bond co-movements.FindingsFI does not provide asset diversification benefits due to high country risks in ASEAN-5. However, when FI is moderated by FD, FI × FD, the study shows that FI × FD provides higher asset diversification benefits in ASEAN-5.Originality/valueThis study shows the importance of incorporating the level of FD when assessing the effect of FI on stock–bond co-movements in ASEAN-5. In the presence of FI, a well-diversified investor should always consider the state of FD, which will show a better representation of asset diversification strategy in the emerging markets. Additionally, policymakers of ASEAN-5 countries should prioritise enhancing their financial system to attract more investment into the countries.
This paper estimates the comovement between two leading cryptocurrencies and the G7 stock markets. It then attempts to explain the comovement with the rational investment theory by examining whether it is driven by market uncertainty measures, public attention to COVID-19, and the government’s containment and health responses to COVID-19. Wavelet Coherence heatmaps show that the stock-cryptocurrency comovements increase significantly and positively during the pandemic, indicating that cryptocurrencies lose their safe haven properties against stocks during the heightened market uncertainties. Over the longer investment horizons, Bitcoin reemerges as a safe haven or strong hedger while Ethereum’s properties weaken. Seemingly Unrelated Regression results reveal that the stock-cryptocurrency comovements are rationally explained by market uncertainties, government responses to COVID-19, and market fundamentals. However, the comovements are also driven by the fear of COVID-19 to a certain extent. Our findings offer valuable insights for investors considering cryptocurrencies to rebalance their equity portfolios during market distress. For policymakers, the Economic Policy Uncertainty (EPU) results suggest that government policies and regulatory frameworks can be used to regulate speculation and investment activities in the cryptocurrency market.
Purpose The purpose of this study is twofold: to examine the effects of the COVID-19 pandemic on the risk dynamics of stock and bond markets in G7 countries; and to examine if the stock-bond risk dynamics can be linked to government measures to contain the pandemic. Design/methodology/approach To examine the pandemic impact on the risk dynamics of the bond and stock markets, this study chooses G7 countries for their efficient financial market properties. This study uses standard generalized autoregressive conditional heteroskedasticity (GARCH) (1,1) and exponential GARCH (1,1) models to determine the most volatile and sensitive market, most persistent market during the crisis and the leverage effect between stock and bond markets. This study then uses a panel study to investigate whether this volatility in stock and bond markets is affected by the COVID-19 cases and various government responses (fiscal stimulus packages, monetary policy, emergency investment in health care and vaccine investment). Findings The findings of the study confirm that the bad news of the pandemic is causing higher volatility than good news for all seven stock markets. Canadian stock and bond markets are the most volatile, and Italian bond and stock markets are the most sensitive G7 countries. Japan has shown the highest persistence, and the stock market exhibits higher leverage than the bond market. Fiscal stimulus packages are helping to reduce bond market volatility, but none of these measures are effective in the stock market. Research limitations/implications The pandemic is still spreading, and the rate at which it spreads wildly will always pose a limitation to any attempt to examine its full effect. Practical implications Investigation of market volatility will help policymakers and market players formulate the best strategies to overcome and exit the crisis and plan post-pandemic solutions. It provides valuable insights for investors to rebalance their portfolios during highly volatile markets while preserving their risk appetite and investment objectives. Originality/value The paper provides evidence on the impact of the pandemic-induced crisis and the respective government responses on the volatility of competing capital markets (stock and bond) in countries that are considered most efficient in reflecting news.
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