The Impact of the Covid-19 Pandemic on the Cross-Sectoral Information Flow in the U.S.

Abstract

In the past decades a connection between the financial services and technology sector has evolved into a dynamic and complex relationship. However, they were not spared from the far-reaching effects that the spread of the Covid-19 pandemic brought, each responding in a distinctive manner. This paper examines the alterations in the bidirectional information flow between the financial services and technology sectors provoked by the virus outbreak by employing the concept of transfer entropy. The results document an asymmetric and modest information flow in distribution tails prior to the pandemic, with the technology sector predominating. However, as we move towards central values, the transfer intensity decreases dramatically, even reaching negative values in the flow from the financial services sector. Following the pandemic declaration, while the technology sector maintains its superior position in information transfer, its strength, shape, and symmetry are notably altered, with transmission doubling from the financial services sector, suggesting cross-sectoral contagion in market downturns and instability of the information transfer.