Abstract
This study investigates the reaction of stock markets to the Covid-19 pandemic and the Global Financial Crisis of 2008 (GFC) and compares their influence in terms of risk exposures. The empirical investigation is conducted using the modified ICSS test, DCC-GARCH, and Diebold-Yilmaz connectedness analysis to examine financial contagion and volatility spillovers. To further reveal the impact of these two crises, the statistical features of tranquil and crisis periods under different time intervals are also compared. The test results show that although the outbreak’s origin was in China, the US stock market is the source of financial contagion and volatility spillovers during the pandemic, just as it was during the GFC. The propagation of shocks is considerably higher between developed economies compared to emerging markets. Additionally, the results show that the COVID-19 pandemic induced a more severe contagious effect and risk transmission than the GFC. The study provides an extensive examination of the COVID-19 pandemic and the GFC in terms of financial contagion and volatility spillovers. The results suggest the presence of strong co-movements of world stock markets with the US equity market, especially in periods of financial turmoil.
Highlights
The world has faced many viral outbreaks recently; the SARS-COV in 2003, MERS-COV in 2012 and Ebola in 2014
As stated by [10], we may expect to see a lower correlation between emerging and developed countries regarding the co-movements of asset prices; the negative effects of financial contagion and volatility spillovers might be limited in this group of economies
Since equity markets are considered the barometers of economic activities, their standalone fluctuations, integrations, co-movements, and volatility transmissions are important for all market participants
Summary
The world has faced many viral outbreaks recently; the SARS-COV in 2003, MERS-COV in 2012 and Ebola in 2014. As stated by [10], we may expect to see a lower correlation between emerging and developed countries regarding the co-movements of asset prices; the negative effects of financial contagion and volatility spillovers might be limited in this group of economies. In essence, this situation was already experienced during the GFC. The following sections of the study present notable literature reviews, explain the theoretical background of utilized econometric models, and summarize this study’s major findings and implications
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
