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The Impact of the COVID-19 Pandemic on Stock Markets: Evidence From a VAR Model

The Impact of the COVID-19 Pandemic on Stock Markets: Evidence From a VAR Model

Rui Dias, João Manuel Pereira
Copyright: © 2020 |Volume: 1 |Issue: 2 |Pages: 14
ISSN: 2644-1780|EISSN: 2644-1799|EISBN13: 9781799803522|DOI: 10.4018/IJEGCC.2020070105
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MLA

Dias, Rui, and João Manuel Pereira. "The Impact of the COVID-19 Pandemic on Stock Markets: Evidence From a VAR Model." IJEGCC vol.1, no.2 2020: pp.57-70. http://doi.org/10.4018/IJEGCC.2020070105

APA

Dias, R. & Pereira, J. M. (2020). The Impact of the COVID-19 Pandemic on Stock Markets: Evidence From a VAR Model. International Journal of Entrepreneurship and Governance in Cognitive Cities (IJEGCC), 1(2), 57-70. http://doi.org/10.4018/IJEGCC.2020070105

Chicago

Dias, Rui, and João Manuel Pereira. "The Impact of the COVID-19 Pandemic on Stock Markets: Evidence From a VAR Model," International Journal of Entrepreneurship and Governance in Cognitive Cities (IJEGCC) 1, no.2: 57-70. http://doi.org/10.4018/IJEGCC.2020070105

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Abstract

COVID-19 has had a marked impact on the global economy, resulting in uncertainty, pessimism, and adverse effects on financial markets. In light of this event, this paper aims to test whether the evolution of COVID-19 (confirmed cases and deaths) is responsible for the stock market indices in eight European countries, from December 31, 2019 to July 23, 2020. Two key research questions have been raised to determine this causal link: Does the increase in COVID-19 cases and deaths cause shockwaves in Europe's financial markets? If so, does the presence of long memories cause high levels of arbitration? The results show mostly structural breaks in March 2020. In contrast, the VAR Granger Causality/Block Exogeneity Wald Tests model shows that the COVID-19 data series (confirmed cases and deaths) do not cause shocks in Europe's financial markets, which in return does not validate the first research question. The results of the exponents detrended fluctuation analysis (DFA) shows significant long memories ranging between 0.61-0.73.

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