COVID-19 pandemic and the dependence structure of global stock markets

Faheem Aslam, Khurrum Mughal, Saqib Aziz, Muhammad Farooq Ahmad () and Dhoha Trabelsi
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Faheem Aslam: CUI - COMSATS University Islamabad
Khurrum Mughal: State Bank of Pakistan
Dhoha Trabelsi: ESCE – International Business School

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Abstract: In this paper, we examine the changes in the dependence structure of global stock markets amid the outbreak of COVID-19. We divide 56 stock markets into developed, emerging, and frontier markets and study their daily price data from 15 October 2019 to 17 August 2020 using the canonical vine (C-vine) copula approach. We observed significant changes in the dependence structure, the selection of the pair copula families, and the associated parameter estimates in the tree. In developed markets, during the COVID-19, the dependence of markets shifted from the Netherlands to France while the root node position of Hungary replaced the market of Poland. The frontier markets showed strong dependence signs with Mauritius before COVID-19 and Slovenia during the outbreak. Our findings are of interest to regulators and practitioners, particularly in monitoring the value at risk of portfolios and adopting appropriate strategies in light of the varying dynamics of stock markets during extreme events, such as COVID-19.

Keywords: COVID-19; vine copulas; dependence structures; stock markets (search for similar items in EconPapers)
Date: 2022-04-15
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Published in Applied Economics, 2022, 54 (18), pp.2013-2031. ⟨10.1080/00036846.2021.1983148⟩

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Journal Article: COVID-19 pandemic and the dependence structure of global stock markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03603005

DOI: 10.1080/00036846.2021.1983148

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