Abstract
This paper aims to examine the impact of Covid-19 pandemic on stock markets. This paper also analyses the stock market cointegration of selected global equity indices that performed better and have a quick speed of recovery during the pandemic. This paper also questions how increasing uncertainty and volatility deters investors’ perception of the diversification of equity investments. The dataset for the selected 12 global equity indices has been used from Thompson Reuters’s EIKON database in a given period of time between 2010 and 2021. This paper employs Vector Error Correction Models to assess the relationship among the selected global equity indices. Findings demonstrate that (i) there is an adverse impact of Covid-19 on the Global Equity markets, (ii) there is a clear sign of cointegration in global equity indices, (ii) investors can benefit from investing in particular equity indices that have exhibited quick speed of recovery from the pandemic records lows. The findings finally provide a strong foundation for constructing a resilient equity portfolio in a highly uncertain market environment.
Highlights
Executing an informed decision in the process of making an investment in the stock market is a determining factor to the success of an investment
The utter mission of an investor is to maximize the returns from an investment vis-à-vis mitigation of risks associated with that investment. It is of utmost importance for an investor to understand how stock indices perform in the global financial markets if strategies such as portfolio diversification are to be capitalized on (Faque, 2021)
Do stock market Cointegrate? Do they have a long run association with each other? Does increasing volatility and uncertainty reduce the window for diversification among global equity indices? These are among other questions that this study aims to respond to
Summary
Executing an informed decision in the process of making an investment in the stock market is a determining factor to the success of an investment. It is of interest to investors, both retail and institutional investors including policy makers to understand the stock market mechanisms and expected future performance of the market. This includes both short run and long run dynamics. The utter mission of an investor is to maximize the returns from an investment vis-à-vis mitigation of risks associated with that investment It is of utmost importance for an investor to understand how stock indices perform in the global financial markets if strategies such as portfolio diversification are to be capitalized on (Faque, 2021)
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