Abstract
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.
Highlights
The Covid-19 pandemic has been one of the greatest challenges faced by the world economy, including the European Union (Consilium, 2021)
This paper focuses on the impact of the Covid-19 pandemic on the degree of persistence of various European stock market indices (DAX, FTSE100, CAC40, FTSE MIB, IBEX35, AEX, SMI, BIST100, WIG20, OMXS30) as well as their volatility
This paper analyses the impact of the Covid-19 pandemic on the degree of persistence of European stock markets
Summary
The Covid-19 pandemic has been one of the greatest challenges faced by the world economy, including the European Union (Consilium, 2021) It has had significant effects both on the real economy and on financial markets. This paper focuses on the impact of the Covid-19 pandemic on the degree of persistence of various European stock market indices (DAX, FTSE100, CAC40, FTSE MIB, IBEX35, AEX, SMI, BIST100, WIG20, OMXS30) as well as their volatility. For this purpose fractional integration methods are used to compare the period from January 2005 to December 2019, namely before the pandemic, to that until July 2021, the latter including the pandemic. The approach used is more general than the standard one based on the I(0) versus I(1) dichotomy and allows for a much wider range of possible stochastic behaviours
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