The impact of the SARS-CoV-2 pandemic on financial markets: a seismologic approach

Alessandro Spelta (), Nicolò Pecora (), Andrea Flori () and Paolo Giudici ()
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Alessandro Spelta: University of Pavia
Nicolò Pecora: Catholic University
Andrea Flori: Polytechnic of Milan
Paolo Giudici: University of Pavia

Annals of Operations Research, 2023, vol. 330, issue 1, No 23, 639-664

Abstract: Abstract This work investigates financial volatility cascades generated by SARS-CoV-2 related news using concepts developed in the field of seismology. We analyze the impact of socio-economic and political announcements, as well as of financial stimulus disclosures, on the reference stock markets of the United States, United Kingdom, Spain, France, Germany and Italy. We quantify market efficiency in processing SARS-CoV-2 related news by means of the observed Omori power-law exponents and we relate these empirical regularities to investors’ behavior through the lens of a stylized Agent-Based financial market model. The analysis reveals that financial markets may underreact to the announcements by taking a finite time to re-adjust prices, thus moving against the efficient market hypothesis. We observe that this empirical regularity can be related to the speculative behavior of market participants, whose willingness to switch toward better performing investment strategies, as well as their degree of reactivity to price trend or mispricing, can induce long-lasting volatility cascades.

Keywords: SARS covid-2; Financial markets; Omori law; Agent-based modeling (search for similar items in EconPapers)
JEL-codes: G15 G18 G41 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-021-04115-y

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