Examining the Asymmetric Impact of COVID-19 Pandemic and Global Financial Crisis on Dow Jones and Oil Price Shock

Khurram Shehzad (), Umer Zaman, Xiaoxing Liu, Jarosław Górecki and Carlo Pugnetti
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Umer Zaman: Endicott College of International Studies, Woosong University, Daejeon 34606, Korea
Xiaoxing Liu: School of Economics and Management, Southeast University, Nanjing 210096, China
Carlo Pugnetti: School of Management and Law, Zurich University of Applied Sciences, 8401 Winterthur, Switzerland

Sustainability, 2021, vol. 13, issue 9, 1-13

Abstract: COVID-19 has significantly affected the financial and commodity markets. The purpose of this investigation is to understand the impact of the COVID-19 crisis on Dow Jones and West Texas Intermediate (WTI) oil returns in relation to other crises using the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model. The results indicate that COVID-19 and the accompanying lockdown have adversely impacted both yields and that the impact on oil prices is more significant than on the Dow Jones index. The variance and squared residuals of oil prices and the Dow Jones reached their highest historical levels during the COVID-19 outbreak, even higher than during the global financial crisis, and especially the VaR of both markets reached their historical peak points during the COVID-19 era. The variance of WTI during COVID-19 is higher than that of DJI, as was also the case during the financial crisis. These findings confirm that COVID-19 has negatively impacted investors’ ability to determine optimal portfolios and thus the sustainability of financial and energy markets more than the global financial crisis of 2007–2009. We, therefore, suggest that policy changes are needed to maintain financial sustainability and help investors deal with future financial and other crises.

Keywords: COVID-19; oil prices; volatility; economic risk; financial markets; EGARCH model; financial sustainability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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