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COVID-19 pandemic and financial innovations

Afees Salisu, Sikiru Abdulsalam and Philip C. Omoke ()
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Philip C. Omoke: Alex Ekwueme Federal University

Quality & Quantity: International Journal of Methodology, 2023, vol. 57, issue 4, No 44, 3885-3904

Abstract: Abstract This study is motivated around the COVID-19 pandemic as a source of rising financial market risks. Hence, we investigate whether pandemic-induced risks can be hedged by alternative investment in financial innovations captured in exchange traded funds (ETFs). We explore the hedging effectiveness of sectoral ETFs along with a battery of robustness measures. Following the predictability analyses, we find that financial innovations captured in ETFs can effectively hedge both pandemic-induced and financially engineered market risks especially after controlling for the role of oil price in the predictive model. Our model provides better in-sample and out-of-sample forecasting accuracy and economic gains than the benchmark model and this is more pronounced for the COVID-19 pandemic period.

Keywords: Pandemic; Hedge; Financial innovation; ETFs; Predictability (search for similar items in EconPapers)
JEL-codes: C53 F21 G11 G15 I19 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11135-022-01540-4

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