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Title: Dynamic comovement and spillover among global financial markets during Covid19: Evidence from wavelet coherence analysis Authors:  Limiao Bai - Universidade Federal de Minas Gerais (Brazil)
Antonio Eduardo Clark Peres - Universidade Federal de Minas Gerais (Brazil)
Virgilio Gaggiato - Universidade Federal de Minas Gerais (Brazil)
Luiz Felix - VU University (Netherlands) [presenting]
Abstract: The purpose is to investigate how the Covid-19 pandemic impacted co-movements and lead-lag relationships among global financial markets. Large unexpected events, such as the September 11th terrorist attack, generally transmit transient shocks to financial markets capable of changing the direction of their causal relationships. The outbreak of Covid-19 pandemic was one such exogenous shock, though with a long-lasting effect, as it propagated waves of turbulence across financial markets and generated time-varying risk contagion among different assets and geographies. Wavelet coherence analysis provides us with an excellent tool to identify these dynamics, i.e., spillovers and risk contagion. Our empirical analysis, utilizing daily data from January/2018 to November/2021, reveals that co-movements between U.S. stocks and other major markets have increased substantially around March/2020 relative to the pre-Covid time. U.S. lead-lag relationship with other equity markets has also changed dramatically post-Covid, especially relative to the Chinese market. Changes in the lead-leg dynamics were also observed across equity, USD, oil, gold and Bitcoin markets. For instance, our results indicate that gold was still a better asset to hedge equity risk than Bitcoin, contrary to the hypothesized by recent studies. Our findings contribute to the domain of portfolio optimization and risk management at different horizon bands.