The COVID-19 Pandemic’s Impact on Stock Markets and Economy: Deep Neural Networks Driving the Alpha Factors Ranking

ABSTRACT

The spread of COVID-19 and international measures to contain it have a significant influence on the economic movement. COVID-19 expresses a fearsome and original risk, setting a massive challenge for investors. These facts give a good reason to study the impact of COVID-19 progress in recent stock-market behavior and draw comparisons over various sectors and industries. This leads to the development of an intelligent trading strategy to investigate the pandemic impact on stock markets. Factors are time-dependent variables that illustrate individual factor periodicity, distinctive cumulative return patterns, and spread duration of under performance. Therefore, we develop a ranking-based clustering strategy alongside two deep neural networks. One is for market state representation, whereas the second model is for the period by which the ranking mechanism is applied. The analysis suggests that COVID-19 is having an unprecedented influence on markets. The investment process needs to be continuously adjusted using different indices for more synthesized patterns. This chapter offers a significant analysis of investors’ evaluation of the overall economy’s consequences, specifically the stock markets. Overall, the results imply that the health crisis morphed into an economic crisis that increased through financial markets. The combination of this analysis notifies investors of their responses to the emergency. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.