Stock Market Responses to COVID-19: Mean Reversion, Dependence and Persistence Behaviours

Coskun, Yener and Akinsomi, Omokolade and Gil-Alana, Luis A. and Yaya, OlaOIuwa S. (2021): Stock Market Responses to COVID-19: Mean Reversion, Dependence and Persistence Behaviours.

Abstract

We examine stock market responses during the COVID-19 pandemic period using fractional integration techniques by considering the data spanning from August 2nd 2019 to July 9th 2020. The evidence suggests that stock markets generally follow a synchronized movement before and during the stages of the pandemic’s shocks. We find that, while mean reversion significantly declines, the degree of persistence and dependence has been increased in the majority of the stock market indices- in the full sample analysis. This outcome implies increasing integration and possibly declining benefits of diversification for the global stock portfolio management.

• Item Type: MPRA Paper
• Language: English
• Keywords: Coronavirus; stock markets; fractional integration; long memory; mean reversion
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C12 - Hypothesis Testing: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

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