Stock market returns, volatility, correlation and liquidity during the COVID-19 crisis: Evidence from the Markov switching approach

Małgorzata Just and Krzysztof Echaust

Finance Research Letters, 2020, vol. 37, issue C

Abstract: This paper investigates the relationship between US stock market returns (S&P500) and three indicators of the market, namely implied volatility, implied correlation and liquidity. It also considers the short range dependence between both total confirmed cases and deaths in twelve countries and market movements. We use the two-regime Markov switching model to find the structural break between stock market returns and key stock market indicators. The findings show close dependence between returns and both implied volatility and implied correlation but not with liquidity. The findings indicate the unique role of Italy in crisis transmission.

Keywords: COVID-19; VIX; Implied correlation; Liquidity (search for similar items in EconPapers)
JEL-codes: C24 C58 G10 G14 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (59)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:37:y:2020:i:c:s1544612320315890

DOI: 10.1016/j.frl.2020.101775

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