A New Form of Financial Contagion: COVID-19 and Stock Market Responses

Samet Gunay ()
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Samet Gunay: Corvinus University of Budapest

Chapter Chapter 18 in Advances in Quantitative Methods for Economics and Business, 2025, pp 381-400 from Springer

Abstract: Abstract The COVID-19 pandemic has given rise to a distinct and more severe manifestation of the contagion phenomenon. In this study, we examine the impact of the COVID-19 pandemic on six different equity markets: the United States, the United Kingdom, Italy, Spain, China, and Turkey. Empirical analyses are conducted for four different time intervals to reveal the effect of the pandemic. The modified Iterative Cumulative Sum of Squares (M-ICSS) test shows that the pandemic has led to structural breaks in the volatility of stock indexes. While break dates predominantly cluster around February 19–21, 2020 in most markets, for the Chinese stock market the break appears approximately three weeks earlier, on January 30, 2020. According to the Dynamic Conditional Correlation Fractionally Integrated Generalized Autoregressive Conditional Heteroskedasticity (DCC-FIGARCH) model, unlike other market pairs, the co-movement between the Chinese and Turkish equity markets increased by approximately 20% during the pandemic. Further examination indicates that the Baltic Dry Index, the value of the yuan, and oil prices are pivotal variables influencing the relationship between these two equity markets. This discovery validates the deepening economic ties between China and Turkey, a trend reinforced by recent initiatives such as the Middle Corridor and Belt Road Initiative, elevating their relationship to a strategic partnership level. Asset managers should take note of this finding when considering portfolio diversification strategies.

Keywords: COVID-19 pandemic; Global equity markets; DCC-FIGARCH; Chinese stock market; I10; I19; A11; B16; C01 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-84782-0_18

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DOI: 10.1007/978-3-031-84782-0_18

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