Efficiency of the financial markets during the COVID-19 crisis: time-varying parameters of fractional stable dynamics

Ayoub Ammy-Driss and Matthieu Garcin (mattgarcin@yahoo.fr)
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Matthieu Garcin: DVRC - De Vinci Research Center - DVHE - De Vinci Higher Education

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Abstract: This paper investigates the impact of COVID-19 on financial markets. It focuses on the evolution of the market efficiency, using two efficiency indicators: the Hurst exponent and the memory parameter of a fractional Lévy-stable motion. The second approach combines, in the same model of dynamic, an alpha-stable distribution and a dependence structure between price returns. We provide a dynamic estimation method for the two efficiency indicators. This method introduces a free parameter, the discount factor, which we select so as to get the best alpha-stable density forecasts for observed price returns. The application to stock indices during the COVID-19 crisis shows a strong loss of efficiency for US indices. On the opposite, Asian and Australian indices seem less affected and the inefficiency of these markets during the COVID-19 crisis is even questionable.

Keywords: Hurst exponent; financial crisis; efficient market hypothesis; dynamic estimation; alpha-stable distribution (search for similar items in EconPapers)
Date: 2021-11-25
Note: View the original document on HAL open archive server: https://hal.science/hal-02903655v3
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