The recovery of global stock markets indices after impacts due to pandemics

S A David; C M C Inácio Jr; José A Tenreiro Machado

doi:10.1016/j.ribaf.2020.101335

The recovery of global stock markets indices after impacts due to pandemics

Res Int Bus Finance. 2021 Jan:55:101335. doi: 10.1016/j.ribaf.2020.101335. Epub 2020 Sep 28.

Authors

S A David¹, C M C Inácio Jr¹, José A Tenreiro Machado²

Affiliations

¹ Systems Dynamics Group, University of São Paulo, Av. Duque de Caxias Norte 225, Pirassununga, SP 13635-900 Brazil.
² Institute of Engineering, Polytechnic of Porto, Rua Dr. António B. de Almeida, 431 - 4249-015 Porto Portugal.

Abstract

The COVID-19 brings back the debate about the impact of disease outbreaks in economies and financial markets. The error correction terms (ECT) and cointegration processing tools have been applied in studies for identifying possible transmission mechanisms between distinct time series. This paper adopts the vector error correction model (VECM) to investigate the dynamic coupling between the pandemics (e.g., the COVID-19, EBOLA, MERS and SARS) and the evolution of key stocks exchange indices (e.g., Dow-Jones, S&P 500, EuroStoxx, DAX, CAC, Nikkei, HSI, Kospi, S&P ASX, Nifty and Ibov). The results show that the shocks caused by the diseases significantly affected the markets. Nonetheless, except for the COVID-19, the stock exchange indices reveal a sustained and fast recovering when an identical length time window of 79 days is analyzed. In addition, our findings contribute to point a higher volatility for all financial indices during the COVID-19, a strong impact over the Ibov-Brazil and its poor recover when compared to the other indices.

Keywords: COVID-19; Cointegration; Disease outbreaks; Market dynamics.