Return Connectedness across Asset Classes around the COVID-19 Outbreak

Elie Bouria, Oguzhan Cepni, David Gabauer*, Rangan Gupta

*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Abstrakt

In this paper, we show evidence of a dramatic change in the structure and time-varying patterns of return connectedness across various assets (gold, crude oil, world equities, currencies, and bonds) around the COVID-19 outbreak. Using the TVP-VAR connectedness approach, the results show that the dynamic total connectedness across the five assets was moderate and quite stable until early 2020. After that, the total connectedness spikes and the structure of the network of connectedness alters, which concurs with the COVID-19 outbreak. The equity and USD indices are the primary transmitters of shocks before the outbreak, whereas the bond index becomes the main transmitters of shocks during the COVID-19 outbreak. However, the USD index is a net receiver of shocks to other assets during the outbreak period. Furthermore, using a recently developed newspaper-based index of uncertainty in financial markets due to infectious diseases to capture the recent impact of COVID-19, we find that connectedness is positively related to this index, and increases at higher levels (conditional quantiles) of connectedness. Overall, our results reflect the speedy disturbing effects of the COVID-19 outbreak, which matters to the formulations of policies seeking to achieve financial stability. The results also indicate a possibility to threaten investors’ portfolios and fade the benefits of diversification.
OriginalsprogEngelsk
Artikelnummer101646
TidsskriftInternational Review of Financial Analysis
Vol/bind73
Antal sider11
ISSN1057-5219
DOI
StatusUdgivet - jan. 2021

Bibliografisk note

Published online: 20 November 2020.

Emneord

  • COVID-19 outbreak
  • Financial markets contagion
  • Return connectedness
  • TVP-VAR

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