The influence of the COVID-19 pandemic on asset-price discovery: Testing the case of Chinese informational asymmetry

Abstract

The circumstances surrounding the outbreak of the COVID-19 pandemic have generated substantial international political strain as governments attempt to mitigate the widespread associated social and economic repercussions. One theory has focused on the potential for Chinese informational asymmetry. Using Chinese financial market data, we attempt to establish the scale and direction of information flows during multiple distinct phases of the development of the pandemic. Two specific results are identified. Firstly, the majority of domestically-traded Chinese stocks present evidence of significant information flows at a far earlier stage than internationally-traded comparatives, suggesting that domestic investors recognised the dangers associated with COVID-19 far in advance of the rest of the world. One potential explanation surrounds the view that the severity of domestically-reported Chinese news was not appropriately recognised by international investors. Secondly, while evidence of safe-haven and flight-to-safety behaviour is evident throughout traditional energy and precious metal markets, cryptocurrencies became informationally-synchronised with Chinese equity markets, indicating their use as an investor safe-haven. This is a particularly concerning outcome for international policy-maker and regulatory authorities due to the fragility of these developing markets.

The influence of the COVID-19 pandemic on the hedging functionality of Chinese financial markets

“…The WIND database is a China-based financial data service provider that serves the domestic financial communities in China as well as foreign qualified investors. Data provided by WIND is widely used in the literature when considering Chinese issues (see, for example, Liu et al, 2019 ; Allen et al, 2019 ; Corbet, Hou, Hu, and Oxley, 2020 ). Following ( Corbet, Hou, Hu, Oxley, and Xu, 2020 ), the COVID concept-based stock indices considered in this paper include the coronavirus index, the facemask index, the influenza index, the coronavirus-detection index, and the disinfectant index.…”

“…The COVID-19 pandemic has generated interesting questions surrounding whether stock index futures contracts can deliver effective hedging functionality against pandemic-related risks, particularly in China due to early origin effects. Effectively answering this question is important as not only was China the earliest epicentre of the COVID-19 pandemic, leading to long-range social and economic impacts on the local ecosystem, but also a substantial influence upon the pricing dynamics of domestic equity, energy, and commodity markets in both the short- and long-term ( Corbet, Hou, Hu, and Oxley, 2020 ). We specifically utilise the China Securities Index 300 (CSI300 hereafter) stock index futures, as it was the first futures exchange introduced in China for both domestic and qualifying foreign investors.…”

Co-movement of energy prices and stock market return: environmental wavelet nexus of COVID-19 pandemic from the USA, Europe, and China

“…Although oil markets are expected to recuperate which is uncertain to estimate the short- and long-term impacts of the coronavirus outbreak (Yousaf et al 2020 ; Tehreem et al 2020 ; Wasif Rasheed and Anser 2017 ; Xu et al 2020 ). This uncertainty poses a significant concern for the US policymakers (Corbet et al 2020 , 2021 ). Esso and Keho ( 2016 ) used cointegration bounds testing and Granger causality to investigate the long-term and causal association between energy consumption, CO 2 emissions, (Asif et al 2020 ; Sarker et al 2020 ; Iram et al 2020 ; Tehreem et al 2020 ), and economic growth.…”

Pandemic Attack and Islamic Stocks Index: A Cross Country Analysis

“…The coronavirus also triggered the decline in stock market prices especially following the World Health Organization (WHO) declaration of its pandemic status which led to negative abnormal returns in the market (Alali, 2020;Liu, Manzoor, Wang, Zhang, & Manzoor 2020). The pandemic impacted the capital market, caused changes in trading times, and transmitted negative signals (bad news), which together eventually induced investors into selling their shareholdings (Corbet, Hou, Hu, & Oxley 2020;Machmuddah, Utomo, Suhartono, Ali, & Ghulam 2020). The conditions created by the pandemic also affected stock market dynamics, causing stock exchanges around the world to decline leading to increasing inefficiency in the market (He, Liu, Wang, & Yu 2020;Lalwani & Meshram 2020;Liu et al 2020;Ngwakwe, 2020).…”