Global commodity and equity markets spillovers to Africa during the COVID-19 pandemic

This paper examines the connectedness among 12 African equity markets and the global commodity, developed equity markets, paying particular attention to their evolution during the COVID-19 pandemic's peak period. We find that whilst African equity markets connect weakly to these markets, the levels of connectedness among these markets improved significantly during the pandemic. In addition, the energy market dominates the transmission of shocks in the system with commodity markets. Regarding the system with equity markets, the French and South African equity markets transmit the highest spillover in the full sample and during the pandemic's peak period, respectively. • Examines the connectedness among African equity and the global equity and commodity markets. • Examines the evolution of connectedness among these markets during the COVID-19. • African equity markets are weakly integrated with the global commodity and equity markets • During the COVID-19 peak period, however, the level of integration among these increased significantly. [ FROM AUTHOR] Copyright of Emerging Markets Review is the property of Elsevier B.V. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full . (Copyright applies to all s.)

Return and volatility spillovers among global assets: Comparing health crisis with geopolitical crisis

This study investigates the dynamic mechanism across equity, cryptocurrency, and commodity markets before and during health and geopolitical crisis (Covid-19 and the Ukrainian war). We apply the (TVP-VAR) based extended joint connectedness methodology, to understand return and volatility connectedness of financial markets for 2010–2023 period. The empirical results indicate that spillovers were particularly high during the Covid-19 and Russia-Ukraine war. First, health and geopolitical risks considerably impact the return and volatility system. Second, the value of total joint connectedness during the COVID-19 period was greater than during Russia-Ukraine war crisis. Also, evidence suggests that Commodity markets, received the highest shocks from other markets after Russia-Ukraine war and wheat was the main commodity receiving chocks from both health and geopolitical crisis. Our findings indicate that spillover channels differ depending on the type of crisis. Specifically, low-frequency components are the main transmission channels during the health crisis, whereas high-frequency components are the main transmission channels during the geopolitical crisis. Finally, results indicate that, cryptocurrency markets played some minor role in transmitting risks between markets. Our results are important in understanding how assets affect return and volatility spillover during geopolitical and health crises and are of particular importance to policymakers, market regulators, investors, and portfolio managers.

Investors' risk aversion and government policy responses to the COVID-19 pandemic

Do government policies during the COVID-19 pandemic affect investors' risk aversion, as proxied by the variance premium? To answer this question, this study examines data regarding government responses from thirteen countries. The empirical analysis indicates that government interventions were not able to substantially reduce variance risk premium in international equity markets. The results also show that economic support policies, containment, and closure regulations, and health system interventions all played a significant role in shaping equity variance risk price.

Financial Contagion Between Crude Oil, Gold, and Equity Sectors in India During COVID

Purpose: This study examined the financial contagion between crude oil and gold prices with the equity prices of different sectors in the Indian equity market during the recent COVID crisis. Design/Methodology/Approach: Dynamic conditional correlation (DCC) GARCH model was employed to analyze the behavior of time-varying conditional correlation during the time of COVID-19. For examining the financial contagion, regression analysis was performed on the dynamic conditional correlation and the conditional volatilities of the different markets. Findings: The DCC model showed a sharp increase in correlations between markets during the COVID-19 wave. It also suggested the presence of financial contagion between the crude oil and gold markets and the different equity sectors. It also indicated that the COVID-19 effect on the conditional correlation between gold and equity sectors was temporary. In contrast, it increased the correlation between crude oil and the equity sectors. Practical Implications: The findings of this study have implications for portfolio diversification methods because higher correlations lower the benefits of diversification. Originality: This study examined the financial contagion during COVID-19 from crude oil and gold to equity sectors. Not all sectors react in the same way to changes in the prices of these commodities, and some may witness less impact compared to others during the crisis period, which makes it interesting for the study. © 2023, Associated Management Consultants Pvt. Ltd.. All rights reserved.

Emerging and advanced economies markets behaviour during the COVID‐19 crisis era

This article examines the consequences of the COVID‐19 crisis on the interdependencies between emerging and advanced economies. Using daily market index data from 22 developed and emerging markets, we develop a combination of statistical methods based on Diebold and Yilmaz spillover index and Toda–Yamamoto and Dolado and Lütkepohl causality approach. The results substantiate an increase in the interdependence between emerging and advances economies, which suggests an increase in the transmission of the stress and uncertainty between financial markets during the pandemic period. Our findings show that the emerging countries are affected by the financial markets of advanced economies during the COVID‐19 crisis and, in particular, by European markets, which appear to be the primary driver of contagion and transmission of stress and uncertainty to all other regional markets.

Consequences of the Russia-Ukraine war: evidence from DAX, ATX, and FTSEMIB

PurposeThe Russian invasion of Ukraine generated unprecedented panic in the European financial system. As expected, the European Union (EU) felt most of the negative effects of the war due to geographical proximity to Ukraine and energy dependence on Russia. This study aims to investigate the influence of Brent crude oil (BCO), Dutch Title Transfer Facility Natural Gas, and CBOE Volatility Index (VIX) on Deutscher Aktien Index (DAX), Austrian Traded Index (ATX) and Milano Indice di Borsa (FTSEMIB). The German, Austrian and Italian equity indexes were chosen due to the heavy dependence of these countries on Russian gas and oil.Design/methodology/approachThe data cover the period from November 24, 2021, to June 24, 2022, including five months of the Russia–Ukraine war. To generate the intended results, vector autoregressive, structural vector autoregressive, vector error correction model, Johansen test and Granger causality test were used.FindingsThe results highlight that natural gas and the VIX carried negative effects on DAX, ATX and FTSEMIB. The BCO was expected to have influenced three selected equity indexes, while the results suggest that it was priced only in ATX.Originality/valueThis research provides modest evidence for the policymakers on the systemic risk that Russian gas has for the EU equity markets. From a managerial perspective, changes in oil and gas prices are a permanently integral part of portfolio risk analysis.

Identifying diversifiers, hedges, and safe havens among Asia Pacific equity markets during COVID-19: New results for ongoing portfolio allocation

We identify diversification benefits among Asian equity markets in the COVID-19 era. We find that such benefits among Asia-Pacific markets changed considerably during the pandemic, and most changes were persistent. In most cases, any of the sample equities had at least one safe-haven protection. The exceptions are Pakistan, Thailand, and Singapore, where diversification benefits are limited and vary across subperiods. The Hong Kong equity market provides safe-haven protection to most markets during periods of extreme negative returns. Further, we find that greater (lower) weightings on the Bangladeshi, Taiwanese, and Malaysian (Thai) markets provide important diversification in terms of maximizing Sharpe ratio and minimizing variance during the pandemic. © 2023 Elsevier Inc.

Connectedness of COVID vaccination with economic policy uncertainty, oil, bonds, and sectoral equity markets: evidence from the US.

We examine the connectedness of the COVID vaccination with the economic policy uncertainty, oil, bonds, and sectoral equity markets in the US within time and frequency domain. The wavelet-based findings show the positive impact of COVID vaccination on the oil and sector indices over various frequency scales and periods. The vaccination is evidenced to lead the oil and sectoral equity markets. More specifically, we document strong connectedness of vaccinations with communication services, financials, health care, industrials, information technology (IT) and real estate equity sectors. However, weak interactions exist within the vaccination-IT-services and vaccination-utilities pairs. Moreover, the effect of vaccination on the Treasury bond index is negative, whereas the economic policy uncertainty shows an interchanging lead and lag relation with vaccination. It is further observed that the interrelation between vaccination and the corporate bond index is insignificant. Overall, the impact of vaccination on the sectoral equity markets and economic policy uncertainty is higher than on oil and corporate bond prices. The study offers several important implications for investors, government regulators, and policymakers.

Skewed multifractal scaling of stock markets during the COVID-19 pandemic.

This article proposes a new paradigm of asymmetric multifractality in financial time series, where the scaling feature varies over two adjacent intervals. The proposed approach first locates a change-point and then performs a multifractal detrended fluctuation analysis (MF-DFA) on each interval. The study investigates the impact of the COVID-19 pandemic on asymmetric multifractal scaling by analyzing financial indices of the G3+1 nations, including the world's four largest economies, from January 2018 to November 2021. The results show common periods of local scaling with increasing multifractality after a change-point at the beginning of 2020 for the US, Japanese, and Eurozone markets. The study also identifies a significant transition in the Chinese market from a turbulent multifractal state to a stable monofractal state. Overall, this new approach provides valuable insights into the characteristics of financial time series and their response to extreme events.

Connectedness among various financial markets classes under Covid-19 pandemic and 2022 Russo-Ukrainian war: evidence from TVP-VAR approach

PurposeThis paper examines the time-varying return connectedness between renewable energy, oil, precious metals, the Gulf Council Cooperation region and the United States stock markets during two successive crises: the pandemic Covid-19 and the 2022 Russo-Ukrainian war. The main objective is to investigate the effect of the Covid-19 pandemic and the Russo-Ukrainian war on the connectedness between the considered stock markets. Design/methodology/approachThis paper uses the time-varying parameter vector autoregression approach, which represents an extension of the Spillover approach (Diebold and Yilmaz, 2009, 2012, 2014), to examine the time-varying connectedness among stock markets. FindingsThis paper reflects the effect of the two crises on the stock markets in terms of shock transmission degree. We find that the United States and renewable energy stock markets are the main net emitters of shocks during the global period and not just during the two considered crises sub-periods. Oil stock market is both an emitter and a receiver of shocks against Gulf Council Cooperation region and United States markets during the full sample period, which may be due to price fluctuation especially during the two crises sub-periods, which suggests that the future is for renewable energy. Originality/valueThis paper examines the effect of the two recent and successive crises, the Covid-19 pandemic and the 2022 Russo-Ukrainian war, on the connectedness among traditional stock markets (the United States and Gulf Council Cooperation region) and commodities stock markets (renewable energy, oil and precious metals).

Forecasting real activity using cross-sectoral stock market information

Stock prices declined abruptly in the wake of the Covid-19, reflecting both the deterioration of investors' expectations of profitability as well as the surge in risk aversion. In the following months however, economic activity remained sluggish while equity markets bounced back. This disconnect between equity values and macro-variables can be partially explained by other factors, namely the decline in risk-free interest rates, and -for the US- the strong earnings of the IT sector. As a result, an econometrician forecasting economic activity with aggregate stock market variables during the Covid-crisis is likely to get poor results. Our main contribution is thus to rely on sectorally disaggregated equity variables within a factor model in order to predict US economic activity. We find, first, that the factor model better predicts future economic activity compared to aggregate equity variables, or to conventional benchmarks used in the literature, both in-sample and out-of-sample. Second, we show that the strong performance of the factor model comes from the fact that it filters out the "expected returns” component of the sectoral equity variables as well as the foreign component of aggregate future cash flows. The constructed factor overweights upstream and "value” sectors that are found to be closely linked to the future state of the business cycle. © 2023 Elsevier Ltd

Emerging equity market reaction to pandemic prevention policy: Evidence from regression discontinuity design

The purpose of this study is both to release the effects of the current pandemic on emerging equity markets and to examine the efficacy of the prevention policy to lessen the plausible negative effects. In this context, Turkey, as an emerging market, is examined by adopting the Regression Discontinuity Design which is a robust non-experimental approach for evaluating the causal effects of interventions. The results of the research reveal that the COVID-19 pandemic is effective in Bourse Istanbul after a certain period when it first appeared in the world. And therewithal, the efficiency of preventing policy taken in the country statistically decreased the negative impact of the pandemic. © 2022, University of Rijeka. All rights reserved.

Static and dynamic linkages between oil, gold and global equity markets in various crisis episodes: Evidence from the Wavelet TVP-VAR

Using the wavelet TVP-VAR approach, this study looks at the static and dynamic connectedness between oil, gold, and global equity markets during several crises episodes, i.e., US subprime crisis of 2007, the global financial crisis of 2008–2009, European debt crisis of 2009–2012, oil crisis of 2014, China stock market crash 2015–16, and the Covid-19. The findings reveal that the connectedness among these markets varies across short vs. long run horizons and across various financial crisis episodes. The connectedness is observed to be high during the crisis's periods. We also perform the portfolio analysis for the pairs of oil, gold, and equity markets and find that gold and/or oil are useful for various equity markets for portfolio diversification and hedging in various market conditions and time horizons. We contend that the results will be valuable to investors, portfolio managers, and policy makers globally.

Forecasting Real Activity using Cross-Sectoral Stock Market Information

Stock prices declined abruptly in the wake of the Covid-19, reflecting both the deterioration of investors' expectations of profitability as well as the surge in risk aversion. In the following months however, economic activity remained sluggish while equity markets bounced back. This disconnect between equity values and macro-variables can be partially explained by other factors, namely the decline in risk-free interest rates, and -for the US- the strong earnings of the IT sector. As a result, an econometrician forecasting economic activity with aggregate stock market variables during the Covid-crisis is likely to get poor results. Our main contribution is thus to rely on sectorally disaggregated equity variables within a factor model in order to predict US economic activity. We find, first, that the factor model better predicts future economic activity compared to aggregate equity variables, or to conventional benchmarks used in the literature, both in-sample and out-of-sample. Second, we show that the strong performance of the factor model comes from the fact that it filters out the "expected returns” component of the sectoral equity variables as well as the foreign component of aggregate future cash flows. The constructed factor overweights upstream and "value” sectors that are found to be closely linked to the future state of the business cycle.

Fat tails and network interlinkages of crude oil and cryptocurrency during the COVID-19 health crisis

Purpose The authors attempt to explore fat tails and network interlinkages of oil prices and the six largest cryptocurrencies from 1st January 2018 and 1st August 2021. The authors also investigate the influences of the COVID-19 pandemic on these network interlinkages. Design/methodology/approach The authors follow Diebold and Yilmaz (2012) to calculate the spillover index the dynamic correlation coefficient model firstly employed by Engle (2002) to study how the volatility of oil prices are transmitted to those of cryptocurrency return and liquidity and vice versa. Findings The results confirm the presence of time-varying interlinkages between the volatilities of the oil market and the cryptocurrency market. Notably, uncertain events like the COVID-19 health crisis significantly influence the time-varying interlinkages they augment dramatically during the COVID-19 health crisis. The turbulence of the cryptocurrency market, especially from Bitcoin and Ethereum, significantly impacts those of the oil market. The role of the oil market in transmitting the effect of respective shocks to the cryptocurrency market, on the other hand, is time-varying, which is only reported when the COVID-19 pandemic first appeared at the beginning of 2020. The turbulence of the cryptocurrency market in the system is greatly explained by themself rather than a transmission mechanism of shocks to the oil market. Practical implications Insightful knowledge about key antecedents of contagion among these markets also help policymakers design adequate policies to reduce these markets' vulnerabilities and minimize the spread of risk or uncertainty across these markets. Originality/value The most significant benefit of the approach is how simple it is to calculate net pairwise connectivity, which identifies transmission channels between these commodity and financial markets. The authors are also the first to use the quasi-maximum likelihood (QML) estimator to estimate the DCC model to measure the volatility spillover index to reflect the level of interdependence between the different markets. By using a daily and up to date database, the authors can observe the role of each market in transmitting and receiving the shocks between two different sub-periods: (1) before and (2) during the COVID-19 pandemic crisis.

Raising capital amid economic policy uncertainty: an empirical investigation.

This paper investigates how economic policy uncertainty affects firms' frequency and their choice of financial instruments to raise capital. By applying a three-step sequential framework over a sample of 6834 publicly listed US non-financial firms, we find that during periods of high economic uncertainty, firms raise capital more frequently with a preference toward debt financing. The empirical findings suggest that firms prefer debt financing over equity financing to avoid ownership dilution and high equity premia. The rise in leverage during periods of high economic uncertainty highlights the importance of scrutinizing policy tools used to stabilize the economy during such times.

Global commodity and equity markets spillovers to Africa during the COVID-19 pandemic

This paper examines the connectedness among 12 African equity markets and the global commodity, developed equity markets, paying particular attention to their evolution during the COVID-19 pandemic's peak period. We find that whilst African equity markets connect weakly to these markets, the levels of connectedness among these markets improved significantly during the pandemic. In addition, the energy market dominates the transmission of shocks in the system with commodity markets. Regarding the system with equity markets, the French and South African equity markets transmit the highest spillover in the full sample and during the pandemic's peak period, respectively.

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

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.

Effects of COVID-19 on cryptocurrency and emerging market connectedness: Empirical evidence from quantile, frequency, and lasso networks

We use time and frequency connectedness approaches based on network analysis to investigate the volatility connectedness among 27 emerging equity markets and seven high-capitalized cryptocurrencies. We estimate the network connectedness using the standard, quantile, frequency, and lasso VAR models for the pre- and post-COVID-19 pandemic periods and daily data over the period from October 2, 2017 to May 20, 2022. The network connectedness estimates based on the several models used in this study indicate a growing risk spillover among and within the emerging market equities and the cryptocurrencies after the COVID-19 pandemic hit the world.  The frequency connectedness analysis shows that cryptocurrencies cannot be used as diversifiers for emerging stock markets in both the short and long-run. The empirical findings from the quantile VAR model reveal that the volatility connectedness in the tails is much stronger compared to the center of the distribution. It is also evident that Saudi Arabia, Thailand’s stock markets, and USDT are the main risk transmitters at the 0.95-th quantile during the post-covid period. Time-varying connectedness estimates confirm the substantial effect of COVID-19. Our study also shows that the spread of risk among these financial markets is global rather than regional, supporting cross-border structure and worldwide financial market integration. The findings suggest cryptocurrency and emerging market equity portfolios should be closely monitored during financial turmoil.

Co-Movement of Covid-19, The S&P 500 and Stock Markets in ASEAN: A Wavelet Coherence Analysis

This study examined the co-movement of ASEAN stock markets, COVID-19 cases/deaths, and the United States (US) stock market using wavelet coherence analysis. The findings revealed that the US stock market remained significantly dominant and was more influential to the ASEAN market. Nevertheless, coherence between the ASEAN stock markets and COVID-19 cases/deaths were also found but was limited during the crisis, and the impact of the number of deaths was lower than the number of cases. The results presented a significant disparity in the co-movements of each country. Such a phenomenon is expected as individual countries' economies tend to be more divergent during crises. Through wavelet analysis, the irregularity and uncertainty of co-movements can be detected more clearly and accurately with the interpretation of a heatmap. © 2022. All Rights Reserved.