COVID-19 and stock returns: Evidence from the Markov switching dependence approach

Ahmed Bouteska, Taimur Sharif and Mohammad Zoynul Abedin

Research in International Business and Finance, 2023, vol. 64, issue C

Abstract: This paper aims to investigate the regime-switching and time-varying dependence between the COVID-19 pandemic and the US stock markets using a Markov-switching framework. It makes two contributions to the empirical literature by showing that: (a) the variations of the daily reported COVID-19 cases and cumulative COVID-19 deaths induced asymmetric lower (left) and upper (right) tail dependence with the stock markets, and its left and right tail dependence exhibited significant time-varying trends; and (b) the left and right tail dependence between the stock markets and the pandemic exhibited significant regime-switching behaviours, with its switching probabilities in the higher tail dependence stage all being greater than in the lower tail dependence stage after 1 December 2019. Moreover, given that there is concurrent but significant financial market reaction to any unexpected emergence of a transmittable respirational disease or a natural calamity, the outcomes have some vital implications to market players and policymakers.

Keywords: COVID-19; Markov regime-switching model; GJR-GARCH model; SJC copula functions; US stock markets (search for similar items in EconPapers)
JEL-codes: C22 C24 C52 C58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531923000089

DOI: 10.1016/j.ribaf.2023.101882

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