Risk Taker or Driver: An Empirical Analysis of US Financial Markets during the COVID-19 Pandemic

Abstract

This paper studies the dynamic risk spillovers between ten major sectors of US stock market during the global COVID-19 pandemic based on the DYCI (Diebold-Yilmaz Connectedness Index) framework. We find that the pairwise directional connectedness between Finance and Utility, Technology and Utility, and Consumer Discretionary were larger than other pairs. These results show that COVID-19 pandemic brought huge shocks to US economy. We also find that the sectors that require in-person contact and were banned in some degree during the pandemic took the greatest impact during the pandemic. But the risk did drop down as the COVID-19 was somehow controlled by the US government.