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

Ayoub Ammy-Driss and Matthieu Garcin

Physica A: Statistical Mechanics and its Applications, 2023, vol. 609, issue C

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: Alpha-stable distribution; Dynamic estimation; Efficient market hypothesis; Financial crisis; Hurst exponent (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:609:y:2023:i:c:s0378437122008937

DOI: 10.1016/j.physa.2022.128335

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