Portfolio diversification during the COVID-19 pandemic: Do vaccinations matter?

Son Duy Pham, Thao Thac Thanh Nguyen, Hung Xuan Do and Xuan Vinh Vo

Journal of Financial Stability, 2023, vol. 65, issue C

Abstract: The COVID-19 vaccine rollout expects to mitigate the severe negative impacts of the pandemic on global financial markets. Our study provides supporting evidence for this expectation. We find robust evidence that vaccinations significantly reduce the cross-country stock volatility connectedness among G7 nations, suggesting that the diversification benefits of an international equity portfolio may be enhanced during the pandemic when vaccinations accelerate. We present two explanations for this result. First, the vaccine deployment improves stock market return and decreases individual stock market volatility. Second, the vaccine rollout helps a country’s stock market be more resilient to exogenous shocks. We further demonstrate that a global portfolio using a tactical allocation rule based on the intensity of vaccinations can outperform a buy-and-hold portfolio in terms of risk-adjusted returns.

Keywords: COVID-19 vaccinations; Portfolio diversification; Volatility connectedness; Performance evaluation; Multivariate heterogeneous autoregressive model (search for similar items in EconPapers)
JEL-codes: G01 G12 G15 H12 I18 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:65:y:2023:i:c:s1572308923000189

DOI: 10.1016/j.jfs.2023.101118

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