Regional Response of Low Carbon Investments to the COVID-19 Pandemic: The Case of Stock Markets in Seeking Carbon Neutrality Goals

This paper examines the comovement and spillover dynamics between the Slovenian and some European (the UK, German, French, Austrian, Hungarian and the Czech) stock market returns. A dynamic conditional correlation GARCH (DCC-GARCH) analysis is applied to returns series of representative national stock indices for the period from April 1997 to May 2010 to answer the following questions: i) Is correlation (comovement) between the Slovenian and European stock markets time-varying; ii) Are there return and volatility spillovers between European and Slovenian stock markets; iii) What effect did financial crises in the period from April 1997 to May 2010 have on the comovement between the investigated stock markets? Results of the DCC-GARCH analysis show that comovement between Slovenian and European stock markets is time-varying and that there were significant return spillovers between the stock markets. Financial crises in the observed period increased comovement between Slovenian and European stock markets.

This paper aims to investigate the dynamic linkages between the European and US stock markets. We firstly examine the volatility spillover effects between the European and US stock markets using multivariate GARCH-BEKK model. The results suggest that volatility spillover effects widely exist in the international equity market. The UK market is the main volatility transmitter within the European stock market while the US is the main exporter worldwide. Secondly, we test the presence of time-varying correlation and tail dependence between return series using Copula-GARCH approach. The results show that correlations between the selected stock indices are not just non-linear but also significantly time-varying. In addition, this analysis also indicates asymmetric time-varying tail dependence between European and US stock market (Jan, 2004-Oct, 2009).

This study aims to analyse the impact of force majeure events or exogenous shocks, characterized by a high level of uncertainty, on the US and European stock market behaviour through cross-regional and inter-industrial comparisons. Based on the sample of 832 largest stock-listed companies publicly traded in both regions, the authors investigate whether specific regional and industrial differences in the stock market reaction to exogenous shocks—as exemplified by the ongoing COVID-19 pandemic—and their recovery paths to be determined. The novelty of the research conducted by the authors is underpinned by the application of a dynamic network analysis method—supported by the exponential random graph modelling—for a data sample of publicly traded companies, encompassing major players and industrial leaders in both regions. Furthermore, the methods are applied quarterly for an identical set of industries in cross-market comparison, within a time span of periods before, during and beyond the exogenous shock. The results reveal significant differences in the reaction of US and European stock markets to exogenous shocks, despite globally integrated financial markets. The connectivity of the largest listed companies on the US market is higher than the European ones. Thus, publicly traded companies in the United States are more likely to be closely connected to their industry peers. As demonstrated by a cross-market comparison of the European and US stock market network configuration, the US network reveals higher probabilities of intra-industrial connections of its market participants. In contrast, the European stock market exhibits fewer connections and a less dense network of market participants in times of uncertainty or exogenous shocks. Except for the European financial industry, which behaves similarly to its US counterpart, the overall interconnectedness of European companies is weaker within the uncertainty-related timespan. The latest could be partially explained by numerous national regulations being implemented at a country level, which are partly deviating from the EU single-market policies. In contrast to a relatively homogeneous setting of the US market, a low level of interconnectedness of publicly traded companies in Europe could be further argued by the application of non-harmonized industrial policies, with the latest being expanded during the ongoing crisis in selected European locations. This difference could also be explained by the absence of a mutual strategy for alleviating the effects of the COVID-19 pandemic in Europe. The obtained results could be valuable for academics, conducting similar thematic research; for portfolio investors, and policymakers in forecasting, reacting and assessing stock market behaviour overall—and at the level of industrial sectors in particular—in response to events characterized as force majeure, exogenous shocks or periods of uncertainty.

This paper analyses the impact of the Covid-19 pandemic on the degree of persistence of European stock markets. Specifically, it uses fractional integration methods to estimate persistence at the daily, weekly and monthly frequencies in the case of ten major European stock market indices; the effects of the pandemic are assessed by comparing the pre-pandemic estimates (over the period 2005-2019) to those from a sample extended until July 2021 which includes the pandemic period. The approach used is more general than the standard one based on the stationarity versus non-stationarity dichotomy and allows for a wider range of dynamic processes. Three different model specifications are considered, and these are estimated under two alternative assumptions for the disturbances (white noise and autocorrelation). The findings indicate that there has not been any significant impact of the Covid-19 pandemic on the degree of persistence of the European stock market indices, though their volatility persistence has decreased.

This paper analyses the impact of the Covid-19 pandemic on the degree of persistence of European stock markets. Specifically, it uses fractional integration methods to estimate persistence at the daily, weekly and monthly frequencies in the case of ten major European stock market indices; the effects of the pandemic are assessed by comparing the pre-pandemic estimates (over the period 2005–2019) to those from a sample extended until July 2021 which includes the pandemic period. The approach used is more general than the standard one based on the stationarity versus non-stationarity dichotomy and allows for a wider range of dynamic processes. Three different model specifications are considered, and these are estimated under two alternative assumptions for the disturbances (white noise and autocorrelation). The findings indicate that there has not been any significant impact of the Covid-19 pandemic on the degree of persistence of the European stock market indices, though their volatility persistence has decreased.

This study investigates the relationship between closing–opening prices of stocks in the US, UK, and European markets and the prices of stocks in the five Association of Southeast Asian Nations (ASEAN-5) markets, a group consisting of five founding members, namely, Indonesia, Malaysia, the Philippines, Singapore, and Thailand. In particular, this study examines the impact of US, UK, and European stock market movements on ASEAN-5 stock markets before and during the COVID-19 pandemic. An autoregressive distributed lag (ARDL) bounds testing approach was employed on two independent data sets, representing prices of stocks before and during the COVID-19 pandemic. The results reveal that among the ASEAN-5 markets, only the Philippines had a cointegration relationship with the US, UK, and European markets before the crisis. However, almost all ASEAN-5 markets moved in tandem with the US, UK, and European markets during COVID-19, except for Thailand. These empirical findings also indicate that the stock markets in the two regions tended to co-move during the COVID-19 pandemic, implying a contagion effect. Further, the causality results also provide substantial evidence of contagion between markets during the pandemic. These results imply that the stock markets in ASEAN-5 are susceptible at the opening bell to the behaviour of US, UK, and European stocks. Therefore, investors or traders in ASEAN-5 should participate in foreign markets (other than the US, UK, and Europe) that do not exhibit cointegration relationships to better mitigate and manage risk at the opening bell, especially during a global crisis.

ABSTRACTThis paper assesses return and volatility spillovers among stock markets in Morocco, the US, UK, France and Germany represented respectively by MASI, S&P 500, FTSE 100, CAC 40 and DAX 30 indices, both before and after the global financial crisis (GFC) of 2008. The daily frequency data cover the period from January 2nd, 2002 to June 30th, 2016. Using the Diebold and Yilmaz approach, the results show varying financial connectedness between the Moroccan and the above mentioned developed stock markets. In fact, the significant increase of spillover index during the post-financial crisis period demonstrates that the US and European stock markets were the most affected. On the other hand, despite a relative increase of spillover effects coming from the US and German equity markets, our results show decline in the total net spillovers experienced by the Moroccan market after the recent financial crisis. These findings may provide some useful information to support decision-making and trading strategies for international investors.

This study examines the impact of COVID-19 on US and European stock indexes, implied volatility (IV) indices, and proposes forecasting accuracy of IV indices form daily data of March 2005 to May 2020, having an out-of-sample assessment of COVID-19. The empirical findings of Canonical Correlation Analysis (CCA) contribute significant insight into COVID-19 over the US and European stock indexes. This result shows that the death and recovery cases of COVID-19 have a significant positive impact of VIX, VXD, and VXN; however, the S&P 500, DJIA, and NASDAQ 100 show a negative association. Again, we also observe the significant impact of COVID-19 in stock trading prices and volatility expectations. The evidence of the point forecasts is more reliable for European IV indices than the US IV indices. Finally, this study validates IV indices' informational efficiency in the financial markets and suggests investors about portfolio management and investment risk minimization for similar future pandemic situations.

This study examines the effect of financial crisis on the level of stock market integration. In particular, we investigated the dynamic movements of two regional stock markets, Northeast Asia and Europe during the period between January 1st, 2000 and December 31st, 2012, with particular attention placed on the global financial crisis (GFC). For this purpose, the paper employs various approaches including DCC-MGARCH, Risk Decomposition, GVAR, and CCOR models to ensure the robustness of empirical findings. The findings of this study are as follows. First, the Northeast Asian stock market remains independent from the European and global stock market movements during the sample period. Second, the European stock market shows an increasing trend of joint integration with Northeast Asian stock market. However, the level of integration is not economically significant. Third, the level of market integration between European and global stock markets had temporally increased during the GFC. However, the level returned to its pre-crisis level in the post-crisis era. The overall empirical evidence suggests that, for either European or global stock market portfolio, constructing a portfolio with Northeast Asian stock market would result in a more efficient portfolio. The results in this paper do not support the view of previous empirical studies which suggested the increased level of integration since the GFC. An increased integration is found to be only unique to the crisis period. In sum, the market integration is a dynamic process, and the financial crisis did not uniformly affect the level of stock market integration.

The effect of digital technology innovation on low carbon investment in renewable energy enterprises

The impact of ESG ratings on low carbon investment: Evidence from renewable energy companies

Although the coronavirus pandemic hit Europe in the early days of 2020, European stock markets had signaled fluctuations in the days before. This paper assesses the observed volatility on European stock exchanges and searches for its sources during the first four months of 2020. To investigate the issue, a panel VAR model is adopted, and the generalized impulse response function and the variance decomposition methods are used. The estimations show that about 34% of the volatility in European stock markets is due to the Chinese stock market, while 7% is due to international uncertainty, as measured by VIX. The impact of pandemic cases and deaths on European stock markets is negligible, below 1%. This means that the European stock market faced two risk elements: the first is the transmission volatility from the Chinese stock market, and the second is the international uncertainty. The findings also support the view that COVID-19 is more like a systematic risk.

The paper analyses the international correlations of the European national stock markets and identifies the potential excess returns which can be reaped by means of international diversification in the emerging European stock market relative to a strategy of purely national diversification both before and after EMU comes into effect. To facilitate a comparison of the pre- and post-EMU effects of international diversification, we construct an EMU index-portfolio as an average of the national stock market indices weighted by the respective national market capitalizations. The performance of the national indices is then compared to the EMU index-portfolio with and without an explicit incorporation of FX volatility. It is found that the excess returns of holding an efficiently diversified European stock market portfolio are positive throughout, with the highest potential for excess returns for Austria, Finland and Italy. However, the results generally indicate that the gains of international diversification are more substantial in the presence of FX volatility. Nevertheless, the national betas are also generally higher when exchange rate variability is accounted for, indicating that the elimination of FX volatility in the wake of EMU is likely to lower to cost of equity in national stock markets.

Can issuing carbon neutral bonds promote low-carbon investment in renewable energy industry？

This paper utilises a trivariate VAR-BEKK-GARCH model to investigate the dynamic relationships between global oil price, gold price, and European stock markets. This paper observes weak return spillover effects from the oil market to 6 European stock markets (Netherlands, Lithuania, Portugal, Czech Republic, Romania, and Slovenia) and from gold to Iceland, while there is no evidence of return spillovers from stock markets to oil and gold. The non-existence of return linkages between gold and stock (oil) suggests that the gold market plays a haven role. With reference to volatility spillovers, the results show obvious asymmetric bidirectional volatility interaction between the European stock markets and the global oil/gold markets. Stronger shock and volatility contagions from the European stock market to both oil and gold markets are observed compared with the opposite direction. For the volatility nexus between oil and gold, weak and moderate evidence of shock and volatility transmission from gold to oil markets is reported. Additionally, the study documents important and effective empirical implications for portfolio management and investment hedge strategies: firstly, adding European stock markets to a diversified oil/gold portfolio can achieve the expected returns while reducing risk; and secondly, the European investors can use the gold and oil markets to hedge against their stock market portfolio.