Volatility transmission across international markets amid COVID 19 pandemic

Abstract

Purpose This paper aims to investigate the volatility transmission across stocks, gold and crude oil markets before and during the novel coronavirus (COVID-19) crisis. Design/methodology/approach A multivariate vector autoregression (VAR)-Baba, Engle, Kraft and Kroner generalized autoregressive conditional heteroskedasticity model (BEKK-GARCH) is used to assess volatility transmission across the examined markets. The sample is divided as follows. The first period ranging from 02/01/2019 to 10/03/2020 defines the pre-COVID-19 crisis. The second period is from 11/03/2020 to 05/10/2020, representing the COVID-19 crisis period. Then, a robustness test is used using exponential GARCH models after including an exogenous variable capturing the growth of COVID-19 confirmed death cases worldwide with the aim to test the accuracy of the VAR-BEKK-GARCH estimated results. Findings Results indicate that the interconnectedness among the examined market has been intensified during the COVID-19 crisis, proving the lack of hedging opportunities. It is also found that stocks and Gold markets lead the crude oil market especially during the COVID-19 crisis, which explains the freefall of the crude oil price during the health crisis. Similarly, results show that Gold is most likely to act as a diversifier rather than a hedging tool during the current health crisis. Originality/value Although the recent studies in the field focused on analyzing the relationships between different markets during the first quarter of 2020, this study considers a larger data set with the aim to assess the volatility transmission across the examined international markets Amid the COVID-19 crisis, while it shows the most significant impact on various financial markets compared to other diseases.

Assessing the Impact of the COVID-19 Pandemic on the Saudi Stock Market’s Performance and Sustainability

“…Furthermore, this study employed the volatility spillover procedure of Diebold and Yilmaz's (2012) to approximate the level of risk of exportation associated with China to the G7 nations. As the advanced event study methodology involves analyzing the impact of specific events on the stock market by examining abnormal returns and the volatility spillover procedure assesses how fluctuations in one market can affect volatility in another, these methodologies are relevant to our study due to their potential to provide a framework for understanding market reactions to significant events like the COVID-19 pandemic (Ajmi et al, 2021). The findings revealed that all the stock markets of G7 countries are suffering subject to uncertainty emanating from the COVID -19 epidemic.…”

Kripto Para Ve Küresel Borsa Endeksleri Arasındaki Volatilite Aktarımı: Covid-19 Dönemi Örneği

“…The index created by Diebold and Yilmaz (2008) has an important place in the literature in terms of investigating the dynamics of return spillover and volatility spillover. Ajmi et al (2021) and, Ghorbel and Jeribi (2021), while examining volatility transmission and spillovers, discussed Bitcoin's hedging tool properties and whether it is a safe haven for various asset classes such as gold, stock market and energy commodities. In addition, Dyhrberg (2016) investigated whether Bitcoin is a hedging tool for FTSE and different parities.…”

“…In their article, Ajmi et al (2021) looked at how volatility was transferred across equities, gold, and crude oil before and during the COVID-19 crisis. The sample, which started from the date 02.01.2019 and ended at the date 05.10.2020, was divided into two periods, the pre-COVID period and the COVID crisis period.…”

Asia-Pacific Islamic Stocks and Gold: A Markov-switching Copula Estimation

“…This hypothesis is motivated by the ability of gold to minimize the risk of stocks during the pandemic, which has been well documented (Padhan & Prabheesh, 2021). One limitation of the literature is that mostly non-MSGARCH models are used to measure the hedge effectiveness of gold against the risk of stocks during the pandemic (Ajmi et al, 2021;Corbet et al, 2020;Fakhfekh et al, 2021;Sikiru & Salisu, 2021).…”