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Investigating the nexus between European major and sectoral stock indices, gold and oil during the COVID-19 pandemic

ABSTRACT: This paper investigates the dynamic conditional linkages between the Eurostoxx50, and the Eurostoxx600 and its sub-indices with COVID-19 deaths, gold, and crude oil. The Dynamic Conditional Correlations (DCC) methodology is employed and the period examined spans from 22 January 2020 until 10 July 2020. Econometric outcomes reveal that the European stock indices are modestly-to-strongly linked with gold in a positive direction and this prevents them from abrupt falls during the pandemic. Nevertheless, weak positive linkages of indices with oil are detected. Sectors of major importance such as the energy sector, financial services, banks, automobiles and parts, and basic resources are mostly influenced by gold and oil. Notably, the impact of COVID-19 deaths on major European markets is rather indirect. These findings inform interested investors in order to ameliorate their risk–return tradeoff during the pandemic bear market.

Supplementary Information

The online version contains supplementary material available at 10.1007/s43546-021-00060-x.

SUBMITTER: Kyriazis Ν

PROVIDER: S-EPMC7988643 | biostudies-literature |

REPOSITORIES: biostudies-literature

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Project description:In this paper, we analyze the impact of the COVID-19 crisis on global stock sectors from two perspectives. First, to measure the effect of the COVID-19 on the volatility connectedness among global stock sectors in the time–frequency domain, we combine the time-varying connectedness and frequency connectedness method and focus on the total, directional, and net connectedness. The empirical results indicate a dramatic rise in the total connectedness among the global stock sectors following the outbreak of COVID-19. However, the high level of the total connectedness lasted only about two months, representing that the impact of COVID-19 is significant but not durable. Furthermore, we observe that the directional and net connectedness changes of different stock sectors during the COVID-19 pandemic are heterogeneous, and the diverse possible driving factors. In addition, the transmission of spillovers among sectors is driven mainly by the high-frequency component (short-term spillovers) during the full sample time. However, the effects of the COVID-19 outbreak also persisted in the long term. Second, we explore how the changing COVID-19 pandemic intensity (represented by the daily new COVID-19 confirmed cases and the daily new COVID-19 death cases worldwide) affect the daily returns of the global stock sectors by using the Quantile-on-Quantile Regression (QQR) methodology of Sim and Zhou (2015). The results indicate the different characteristics in responses of the stock sectors to the pandemic intensity. Specifically, most sectors are severely impacted by the COVID-19. In contrast, some sectors (Necessary Consume and Medical & Health) that are least affected by the COVID-19 pandemic (especially in the milder stage of the COVID-19 pandemic) are those that are related to the provision of goods and services which can be considered as necessities and substitutes. These results also hold after several robustness checks. Our findings may help understand the sectoral dynamics in the global stock market and provide significant implications for portfolio managers, investors, and government agencies in times of highly stressful events like the COVID-19 crisis.

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Investigating the nexus between European major and sectoral stock indices, gold and oil during the COVID-19 pandemic

Supplementary Information

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