Time-varying effects of the COVID-19 pandemic on stock markets and economic activity: evidence from the US and Europe

Guglielmo Maria Caporale, Abdurrahman Nazif Çatık (), Mohamad Husam Helmi, Coşkun Akdeniz () and Ali İlhan ()
Additional contact information
Abdurrahman Nazif Çatık: Ege University
Coşkun Akdeniz: Tekirdağ Namık Kemal University
Ali İlhan: Tekirdağ Namık Kemal University

Empirica, 2024, vol. 51, issue 2, No 9, 529-558

Abstract: Abstract This paper examines the effects of the COVID-19 pandemic on CDS, stock returns, and economic activity in the US and the five European countries that have been most affected: the UK, Germany, France, Italy, and Spain. The sample period covers the period from 11 March 2020 to 19 February 2021. In the empirical analysis, first, we estimate benchmark linear VAR models and then, given the evidence of parameter instability, TVP-VAR models with stochastic volatility, which are ideally suited to capturing the changing dynamics in both financial markets and the real economy. The linear VAR responses of CDS to the number of COVID-19 cases are positive and statistically significant, whilst those of electricity consumption are insignificant and those of stock returns vary across countries in terms of their sign and significance. The results from the TVP-VAR analysis indicate that the effects of shocks on the system variables was more pronounced during the initial stages of the pandemic and then decreased in the following months. Specifically, there was a positive impact of the number of COVID-19 cases on CDS and a negative one on stock returns and economic activity, the latter two being interlinked.

Keywords: COVID-19; Stock markets; Economic activity; CDS; TVP-VAR (search for similar items in EconPapers)
JEL-codes: C32 E32 G10 G15 I18 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10663-024-09608-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:empiri:v:51:y:2024:i:2:d:10.1007_s10663-024-09608-0

Ordering information: This journal article can be ordered from
http://www.springer. ... ration/journal/10663

DOI: 10.1007/s10663-024-09608-0

Access Statistics for this article

Empirica is currently edited by Fritz Breuss and Fritz Breuss

More articles in Empirica from Springer, Austrian Institute for Economic Research, Austrian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().