ABSTRACT
In this paper, we study the role of narratives in stock markets with a particular focus on the relationship with the ongoing COVID-19 pandemic. The pandemic represents a natural setting for the development of viral financial market narratives. We thus treat the pandemic as a natural experiment on the relation between prevailing narratives and financial markets. We adopt natural language processing (NLP) on financial news to characterize the evolution of important narratives. Doing so, we reduce the high-dimensional narrative information to few interpretable and important features while avoiding over-fitting. In addition to the common features, we consider virality as a novel feature of narratives, inspired by Shiller (Am Econ Rev 107:967-1004, 2017). Our aim is to establish whether the prevailing narratives drive or are driven by stock market conditions. Focusing on the coronavirus narratives, we document some stylized facts about its evolution around a severe event-driven stock market decline. We find the pandemic-relevant narratives are influenced by stock market conditions and act as a cellar for brewing a perennial economic narrative. We successfully identified a perennial risk narrative, whose shock is followed by a severe market drop and a long-term increase of market volatility. In the out-of-sample test, this narrative went viral since the start of the global COVID-19 pandemic, when the pandemic-relevant narratives dominate news media, show negative sentiment and were more linked to "crisis" context. Our findings encourage the use of narratives to evaluate long-term market conditions and to early warn event-driven severe market declines.
ABSTRACT
In this paper, we empirically analyse the performance of five gold-backed stablecoins during the COVID-19 pandemic and compare them to gold, Bitcoin and Tether. In the digital assets' ecosystem, gold-backed cryptocurrencies have the potential to address regulatory and policy concerns by decreasing volatility of cryptocurrency prices and facilitating broader cryptocurrency adoption. We find that during the COVID-19 pandemic, gold-backed cryptocurrencies were susceptible to volatility transmitted from gold markets. Our results indicate that for the selected gold-backed cryptocurrencies, their volatility, and as a consequence, risks associated with volatility, remained comparable to the Bitcoin. In addition, gold-backed cryptocurrencies did not show safe-haven potential comparable to their underlying precious metal, gold.
ABSTRACT
In this study, we analyze stock market performance of 43 firms that show very large price rises in COVID-19 times for the period 21/11/2019 – 20/1/2021. These cover 6 industries - work-from-home companies, stay-at-home companies, Cryptocurrency companies, Bitcoin companies, Coronavirus Vaccine companies and Coronavirus therapeutics companies. Our results demonstrate the presence of bubbles and persistence patterns.
ABSTRACT
This paper analyses herding in cryptocurrency markets in the time of the COVID-19 pandemic. We employ a combination of quantitative methods to hourly prices of the four most traded cryptocurrency markets - USD, EUR, JPY and KRW - for the period from 1st January 2019 to 13th March 2020. While there are several strong theoretical reasons to observe the “black swan” effect on cryptocurrency herding, our results suggest that COVID-19 does not amplify herding in cryptocurrency markets. In all markets studied, herding remains contingent on up or down markets days, but does not get stronger during the COVID-19. These results are important for cryptocurrency investors and regulators to enhance their understanding of cryptocurrency markets and the financial effects of the COVID-19 pandemic.