COVID-19 pandemic: measuring stock indices correlation between different countries

Abstract

The study's goal is to assess cross-country stock correlation during the 2019 global corona-virus outbreak. The paper uses vector autoregression model (VAR) for analysis of correlation between 6 countries stock indices. This paper investigates international stock return correlations between 6 countries, China, the U.S., France, Germany, the U.K and Japan. Estimate correlations are modeled in EViews 9 to evaluate that based on Covid-19 whether the stock markets in different countries can affect each other. Results show that changes in one of the endogenous variables cause fluctuations in the other variables. COVID 19 produced some shocks to the representative index returns of the six countries mentioned above. Also after analysis using the impulse function, there is areas of strength for a relationship between's the list return instability of the six nations, i.e. stock market volatility in each country affects other countries to a greater or lesser extent during special events, providing an idea for improving the current situation of financial markets in each country. Therefore, governments need to consider the stock market situation in other countries in order to take effective action to prevent stock markets from being affected by Covid-19.