ENERGY COMMODITY PRICE RESPONSE TO COVID-19: IMPACT OF EPIDEMIC STATUS, GOVERNMENT POLICY, AND STOCK MARKET VOLATILITY

Katarzyna Czech,Michał Wielechowski

doi:10.32479/ijeep.11025

Abstract

The outbreak of the COVID-19 pandemic has hit the global financial markets, including energy commodities. The aim of the paper is to examine the reaction of the energy commodity market to the COVID-19 pandemic, particularly the epidemic status, the stringency of the government anti-COVID-19 policy, and the stock market volatility. We use daily data on the S&P GSCI Energy index, the number of new confirmed COVID-19 global cases, the self-developed Global Stringency Index, and the VIX index. The research covers the period from January 2 to September 30, 2020, i.e. the first phase of the COVID-19 pandemic. Based on a structural vector autoregressive model we observe a significant and negative energy commodity market's reaction to the changes in the stock market volatility. Moreover, the results imply that the increase in the Global Stringency Index leads to the decline in the S&P GSCI Energy index but the reaction is significant only on the third day after the shock. We reveal no significant impact of global epidemic status on energy commodity prices.Keywords: energy commodities, COVID-19 pandemic; stock market volatility; Global Stringency Index; government anti-COVID-19 policy; structural vector autoregressive modelJEL Classifications: G01, G12, G15, H12, Q41DOI: https://doi.org/10.32479/ijeep.11025

Highlights

The spread of the COVID-19, an infectious disease caused by the severe acute respiratory syndrome coronavirus 2 – SARS-CoV-2, moved the World Health Organization to officially classify it as a global pandemic on March 11, 2020 (Andersen et al, 2020; Maier and Brockmann, 2020)
Our study focuses on the energy commodity prices reaction to key factors linked to the COVID-19 pandemic, i.e. the epidemic status, the stringency of governmental anti-COVID-19 policy, and the financial market volatility
We examine the reaction of the energy commodity market on the COVID-19 pandemic, the epidemic status, the stringency of anti-COVID-19 government policy, and the financial market uncertainty

Summary

Introduction

The spread of the COVID-19, an infectious disease caused by the severe acute respiratory syndrome coronavirus 2 – SARS-CoV-2, moved the World Health Organization to officially classify it as a global pandemic on March 11, 2020 (Andersen et al, 2020; Maier and Brockmann, 2020). Since the beginning of the pandemic till 30 September 2020, about 35 million cases of COVID-19 have been reported worldwide, causing more than one million deaths. The adverse global COVID-19 scenario states that the pandemic will potentially infect 7.0 billion people, causing 40 million deaths (Walker et al, 2020). The novel coronavirus represents the fear of the unknown and should be treated as the father of all fears that have overtaken global financial and economic systems. As a consequence, this fear has led to the national governments’ reactions worldwide (Phan and Narayan, 2020)

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