Time of COVID-19: stability analysis of stocks, exchange rates, minerals and metals markets

Abstract

The coronavirus (COVID-19) pandemic has shaken the global economy and significantly affected the financial markets. This anxiety triggered panic reactions. The article aims to explain impact of abrupt changes in structural stability of four key asset markets due to pandemic. It includes a detail discussion regarding structural change in co-movement of stock indices, exchange rates, minerals and metal returns. The daily returns of 14 financial indices across four groups during a span of 25 January 2019 to 3 February 2021 are sampled. The selection of financial assets is based on trading volume and velocity in each of the four groups. The results of Markov Switching model explain that pandemic not only increase volatility of financial markets but also have a significant long-term impact on structural behaviour in daily returns. The analysis further reveals differences in co-movement of financial returns during two periods. However, on a positive note, pandemic does make a way for few financial assets to dominate the market, especially ones recognised as ‘safe-haven’ assets.