Covid-19 pandemic and tail-dependency networks of financial assets

Trung Hai Le; Hung Xuan Do; Duc Khuong Nguyen; Ahmet Sensoy

doi:10.1016/j.frl.2020.101800

Covid-19 pandemic and tail-dependency networks of financial assets

Financ Res Lett. 2021 Jan:38:101800. doi: 10.1016/j.frl.2020.101800. Epub 2020 Oct 20.

Authors

Trung Hai Le¹, Hung Xuan Do², Duc Khuong Nguyen^{3

4}, Ahmet Sensoy⁵

Affiliations

¹ Banking Faculty, Banking Academy of Vietnam, Hanoi, Vietnam.
² School of Economics and Finance, Massey University, New Zealand.
³ IPAG Business School, Paris, France.
⁴ International School, Vietnam National University, Hanoi, Vietnam.
⁵ Faculty of Business Administration, Bilkent University, Ankara, Turkey.

Abstract

This study provides evidence on the frequency-based dependency networks of various financial assets in the tails of return distributions given the extreme price movements under the exceptional circumstance of the Covid-19 pandemic, qualified by the IMF as the Great Lockdown. Our results from the quantile cross-spectral analysis and tail-dependency networks show increases in the network density in both lower and upper joint distributions of asset returns. Particularly, we observe an asymmetric impact of the Covid-19 because the left-tail dependencies become stronger and more prevalent than the right-tail dependencies. The cross-asset tail-dependency of equity, currency and commodity also increases considerably, especially in the left-tail, implying a higher degree of tail contagion effects. Meanwhile, Bitcoin and US Treasury bonds are disconnected from both tail-dependency networks, which suggests their safe-haven characteristics.

Keywords: Asymmetric effect; Covid-19; Financial networks; Tail-dependency.