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COVID-19 and stock returns: Evidence from the Markov switching dependence approach
Research in International Business and Finance, Volume: 64, Start page: 101882
Swansea University Author: Abedin Abedin
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© 2023 The Authors. Published by Elsevier B.V. Distributed under the terms of a Creative Commons Attribution 4.0 License (CC BY 4.0).
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DOI (Published version): 10.1016/j.ribaf.2023.101882
Abstract
This paper aims to investigate the regime-switching and time-varying dependence between the COVID-19 pandemic and the US stock markets using a Markov-switching framework. It makes two contributions to the empirical literature by showing that: (a) the variations of the daily reported COVID-19 cases a...
Published in: | Research in International Business and Finance |
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ISSN: | 0275-5319 1878-3384 |
Published: |
Elsevier BV
2023
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Online Access: |
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URI: | https://cronfa.swan.ac.uk/Record/cronfa64244 |
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Abstract: |
This paper aims to investigate the regime-switching and time-varying dependence between the COVID-19 pandemic and the US stock markets using a Markov-switching framework. It makes two contributions to the empirical literature by showing that: (a) the variations of the daily reported COVID-19 cases and cumulative COVID-19 deaths induced asymmetric lower (left) and upper (right) tail dependence with the stock markets, and its left and right tail dependence exhibited significant time-varying trends; and (b) the left and right tail dependence between the stock markets and the pandemic exhibited significant regime-switching behaviours, with its switching probabilities in the higher tail dependence stage all being greater than in the lower tail dependence stage after 1 December 2019. Moreover, given that there is concurrent but significant financial market reaction to any unexpected emergence of a transmittable respirational disease or a natural calamity, the outcomes have some vital implications to market players and policymakers. |
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Keywords: |
COVID-19, Markov regime-switching model, GJR-GARCH model, SJC copula functions, US stock markets |
College: |
Faculty of Humanities and Social Sciences |
Start Page: |
101882 |