COVID-19: A Game-changer to Equity Markets?

Abstract

This article applies the effective transfer entropy methodology to quantify the information flow between equities in major global equity markets in Australia, Brazil, Canada, China, Germany, Iran, Japan, Qatar, Saudi Arabia, South Africa, South Korea, United Kingdom, and the United States – a pool of 2200 companies included. To account for COVID-19 impacts, the period of the study was extended over two years. The results show changes to the information flow pattern after COVID-19, with the largest changes being encountered in Australia, Brazil, Canada, Japan, and the United States – for their largest market participants (by market capitalization). In comparison, the Asian markets show less noticeable changes in their information flow pattern after COVID-19. On a sector level, most of the markets studied have seen substantial changes in the functionality of their sectors – in terms of being a transmitter or receiver of information – after COVID-19 appearance. The fraction of sectors with a complete change in their influencing role since COVID-19 has been over 70% in Australia, Canada, South Africa, and the United States. The financial services sector has retained its role - as being the most influencing sector - in 6 out of 13 markets considered after COVID-19. For most of the markets, the basic materials, communications, energy, and utilities sectors have retained an intermediate position in the information flow diagram, after COVID-19. The German market has been the only market, in which the main information transmitter and receiver sectors have remained unchanged, since COVID-19. The results suggest drastic moves in major global equity markets, which have been concurrent with the virus outbreak. Doi: 10.28991/HEF-2021-02-01-05 Full Text: PDF

The Global Equity Market Reactions of the Oil & Gas Midstream and Marine Shipping Industries to COVID-19: An Entropy Analysis

“…With regards to the equity market reactions, Kamal et al (2021) [5] applied an event study methodology to assess the market reactions of selected shipping stocks (listed on the New York Stock Exchange (NYSE)) to several COVID-related news of optimistic and pessimistic nature. They found positive market reactions for marine transportation equities to the announcement of optimistic events, such as approval of the first COVID-19 vaccine or the proposal of economic stimulus plans, and adverse market reactions to pessimistic news [11][12][13][14][15][16][17][18][19]. However, the number of such investigationslinking COVID-19 and transportation equities-seem to be quite limited, compared to the existing bulk literature on the COVID-19 impacts on global equity markets [20][21][22][23][24][25][26][27][28].…”

“…The transfer entropy methodology effectively quantifies the reduction in uncertaintyprovided by past values of variablesin predicting the dependent variable, as it is conditioned on these past values, and is considered as a model-free statistic capable of measuring the time-directed transfer of information between stochastic variables as well as providing the asymmetric information transfer measures in multivariate distributions [37]. A number of previous investigations have applied the TE methodology to analyze the financial markets [11,38,39].…”

“…For instance, Golmohammadi & Fazelabdolabadi (2021) [11] mapped the information transfer paradigm between 2200 equitiesglobally distributed within major financial marketsfor the periods before and after the COVID-19 outbreak. They report on drastic changes in major global equity markets in the aftermath of COVID-19 emergence, which was based on the changes in the underlying information flow pattern -derived from effective transfer entropywithin the markets studied [11] -Australia, Brazil, Canada, China, Germany, Iran, Japan, Qatar, Saudi Arabia, South Africa, South Korea, United Kingdom, and the United States. In addition, they report on substantial changes (nearly 70%) in the functionality of the market sectorsin terms of being a transmitter or receiver of informationencountered after COVID-19 emergence.…”