Contagion and portfolio management in times of COVID-19

Abstract

This paper aims to investigate the COVID-19 pandemic impacts on the interconnectedness between the Chinese stock market and major financial and commodity markets—gold, silver, Bitcoin, WTI, S&P 500, and Euro STOXX 50—and analyze the portfolio design implications. Using daily data from 2018 to 2021, we first apply the wavelet power spectrum (WPS) to visualize volatility shifts. In contrast to previous research, we empirically identify the precise COVID-19 outbreak dates for each market using the Perron (1997) breakpoint test. Finally, we employ the bivariate DCC-GARCH model to analyze the connectedness between markets. The findings reveal that the COVID-19 pandemic caused volatility shifts of different intensities for all of the studied markets. Moreover, each return series exhibits one break date, which is specific to each market and corresponds to a distinct COVID-19-related event. Correlations, hedge ratios, and optimal portfolio weights changed significantly after the COVID-19 outbreak. There is evidence of contagion effects between the Chinese stock market and S&P 500, Euro STOXX 50, gold, and silver. Interestingly, the latter two assets lost their safe haven property with SSE. However, WTI and Bitcoin act as safe havens against SSE risks.

Global commodity and equity markets spillovers to Africa during the COVID-19 pandemic

“… Del Lo et al, 2021 ; Takyi and Bentum-Ennin, 2021 ; Omane-Adjepong and Alagidede, 2021 ), how COVID-19 shape the connectedness and interdependence of these markets to the global financial market remain unexplored. This is surprising as it is generally acknowledged that COVID-19 has amplified financial market risks, causing new challenges for financial risk managers ( Belhassine and Karamti, 2021 ). Hence, our work differs from extant studies in that we distill the market integration among the African and global stock markets from the COVID-19 contagion effect.…”

“…Along this line, the second literature our study relates to is a growing literature on how COVID-19 drives the connectedness of the international financial market (e.g. Adekoya and Oliyide, 2021 ; Bissoondoyal-Bheenick et al, 2021 ; Karamti and Belhassine, 2021 ; Belhassine and Karamti, 2021 ; Guo et al, 2021 ; Benlagha and El Omari, 2021 ; Akhtaruzzaman et al, 2021 ; Liu et al, 2021a , Liu et al, 2021b ; Wang et al, 2021 ).…”

“…by applying a new DCC-GARCH connectedness approach. Belhassine and Karamti (2021) examine how the COVID-19 pandemic impacts the interconnectedness between the Chinese stock market and major financial and commodity markets as captured by gold, silver, Bitcoin, WTI, S&P 500, and Euro STOXX 50 stock indexes. Bissoondoyal-Bheenick et al (2021) analyze the influence of COVID–19 stages and deaths on the return and volatility connectedness between the G20 countries using the Diebold and Yilmaz (2012) spillover method.…”

“… Adekoya and Oliyide, 2021 ; Benlagha and El Omari, 2021 ; Lahiani et al, 2021 ; Maghyereh and Abdoh, 2021 ; Farid et al, 2021 ; Elgammal et al, 2021 ). While studies focusing on the above relationships are well established, only a few studies focus on how the pandemics drive the connectedness of international financial markets ( Karamti and Belhassine, 2021 ; Belhassine and Karamti, 2021 ; Guo et al, 2021 ; Akhtaruzzaman et al, 2021 ; Liu et al, 2021a , Liu et al, 2021b ; Wang et al, 2021 ). More importantly, the literature has ignored how the pandemic drives the connectedness of African countries' financial and commodity markets to the global financial market.…”

The contagion effect of jump risk across Asian stock markets during the Covid-19 pandemic

“…As the outbreak of the Covid-19 pandemic has shaken the global financial markets, it has led to significant turmoil in the global financial markets, and the international major equity markets have suffered a common sharp fall. Accordingly, research about the contagion effect across global financial markets induced by the Covid-19 pandemic has been very popular, and many researchers have studied the topic from different perspectives ( Ahelegbey et al, 2021 , Yang et al, 2021 , Akhtaruzzaman et al, 2021 , Apergis et al, 2019 , Zorgati and Garfatta, 2021 , Li, 2021 , Belhassine and Karamti, 2021 , Choi, 2021 , Davidovic, 2021 , Guo et al, 2021 ; Iwanicz et al, 2021; Lai and Hu, 2021 , Luo et al, 2021 , BenMim and BenSaïda, 2019 , Rao et al, 2021 , Zainudin and Mohamad, 2021 ).…”