Shaking Stability: COVID-19 Impact on the Visegrad Group Countries’ Financial Markets

Katarzyna Czech,Pavel Kotyza,Michał Wielechowski,Irena Benešová,Adriana Laputková

doi:10.3390/su12156282

Katarzyna Czech, Pavel Kotyza + Show 3 more

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https://doi.org/10.3390/su12156282

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Abstract

The recent outbreak of the coronavirus pandemic has made a significant impact on the global financial markets. The aim of this paper is to assess the short-term reaction of the Visegrad countries’ financial markets to the COVID-19 pandemic. The Visegrad Group is a political alliance of four Central European countries, namely Czechia, Hungary, Poland, and Slovakia. The financial assessment is based on the EUR/CZK, EUR/HUF, and EUR/PLN exchange rates and the major blue-chip stock market indices, that is Prague PX, Budapest BUX, Warsaw WIG20, and Bratislava SAX. It is evident that the ongoing pandemic has changed the expectations of the financial market participants about the future value of exchange rates in the Visegrad countries. This study indicates that, as a consequence of COVID-19, higher probability has been attached to the large depreciation of the Czech koruna (CZK), the Hungarian forint (HUF), and the Polish zloty (PLN) than to their large appreciation. Moreover, based on the TGARCH model, the positive and significant correlation between the number of reported COVID-19 cases and the exchange rates has been confirmed, implying that the ongoing pandemic has resulted in the depreciation of the Visegrad currencies. Additionally, the result of the TGARCH model reveals that there is a significant and negative link between the Visegrad stock market indices and the COVID-19 spread.

Highlights

The outbreak of COVID-19 caused by the coronavirus severe acute respiratory syndrome (SARS)-CoV-2 in China has been widely observed and commented on by governments, researchers, and the public alike
This study indicates that, as a consequence of COVID-19, higher probability has been attached to the large depreciation of the Czech koruna (CZK), the Hungarian forint (HUF), and the Polish zloty (PLN) than to their large appreciation
The severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) causes an infectious disease called COVID-19 that can be spread between humans, and it is the seventh coronavirus known to infect people [4]

Summary

Introduction

The outbreak of COVID-19 caused by the coronavirus SARS-CoV-2 in China has been widely observed and commented on by governments, researchers, and the public alike. The severe acute respiratory syndrome (SARS)-CoV and Middle East respiratory syndrome (MERS)-CoV, discovered in 2003 and 2012, respectively, are two epidemic endemic coronaviruses that have caused severe diseases in humans in the last two decades [5]. The exponential international growth in COVID-19 infections from late February 2020, combined with the absence of effective treatment or vaccine, has resulted in many countries accepting numerous restrictions to “flatten the curve”, preventing health care system failure. In many cases, these restrictions are related to the economic lockdown. According to Walker’s adverse scenario [9], the COVID-19 pandemic will potentially infect 7.0 billion people worldwide, causing 40 million deaths

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