Downside risk-return volatilities during Covid 19 outbreak: a comparison across developed and emerging markets

Abstract

This research study evaluates the impact of the Covid 19 pandemics on the downside risk-return volatilities across the four stock markets of the USA, UK, China, and Pakistan. The pandemic results in severe economic and financial consequences both at micro and macro levels as well as across the stock markets of various countries. The selected stock markets of the USA, UK, Pakistan, and China are significantly affected in terms of both investor risk and return during the pandemic time. The entire period distribution of the risk exhibited the downside risk behavior of both markets and investors’ serious concern regarding their investment strategies. Using high-frequency data from January 2020 to April 2021, the findings of the study reveal more of the downside abnormal returns across both markets. The impact is larger and high in developed markets of USA and UK compared to the emerging markets of China and Pakistan. The outcomes of the various value-at-risk models disclose the higher downside risk implications for all markets, larger for developed countries. Similarly, the three stock markets of the USA, UK, and China were found to be significantly connected during a pandemic. Investors’ reactions were positive and high in case of positive news outbreaks and dwindling in case of negative news and downside impact. The outcomes of the study are useful for investors, portfolio managers, investment advisors, and others to understand the dynamics of the pandemic situation and devise effective strategies to overcome the severities of downside risk.

Digital transformation and economic development: A review of emerging technologies' impact on national economies

“…Their findings reveal that the impact of the pandemic was larger and more significant in developed markets (USA and UK) compared to emerging markets (China and Pakistan). This suggests that developed markets, despite their advanced economic structures, faced greater financial volatility during the pandemic, highlighting the differing economic resilience between developed and emerging markets (Shah, Raza, & Hashmi, 2022).…”

Enhancing Sustainable Finance through Green Hydrogen Equity Investments: A Multifaceted Risk-Return Analysis

“…Value-at-Risk (VaR) is widely recognized as an industry standard for measuring downside risk in financial markets (Boudt et al 2008;Shah et al 2022;Hood and Malik 2018;Peterson et al 2020). By providing a standardized and quantifiable measure of downside risk, VaR plays a critical role in risk management and regulatory compliance within the financial industry.…”

Volatility Spillover Effects during Pre-and-Post COVID-19 Outbreak on Indian Market from the USA, China, Japan, Germany, and Australia

“…As a result, policymakers and portfolio managers believed it was critical to examine the volatility of financial assets and the consequences of information spillover from one economy to another in the context of this epidemic. Extreme downside risk-return volatilities during the pandemic from developed economies to emerging economies were examined and the results show downside abnormal returns to be more prominent in developed economies rather than emerging economies (Shah et al 2022). Similarly, volatility in the stock market hampers economic performance through reduced consumer spending (Garner 1988) and it may also negatively affect business investment spending (Gertler and Hubbard 1988).…”