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The COVID-19 black swan crisis: Reaction and recovery of various financial markets

The COVID-19 black swan crisis: Reaction and recovery of various financial markets
The COVID-19 black swan crisis: Reaction and recovery of various financial markets
This paper examines and compares financial market reaction and recovery of four broad classes of financial assets – equity indexes, precious metals, 10-year benchmark bonds and cryptocurrencies, to the COVID-19 pandemic. The data set comprises daily observations of close prices in the selected markets from 17-04-2018 to 20-06-2021. Using the Yang and Zhao (2020) and Koenker and Xiao (2004) quantile unit-root tests for return persistence, we find heterogeneity in reactions and recovery patterns not only across asset classes, but also within them. Specifically, we find strong potential for mean reversion in equity markets even at high levels of shocks. While gold offers limited mean reversion, platinum shows very strong resistance to the COVID. Government bonds show small declines in value to the COVID in addition to high persistence. Cryptocurrencies, as a group, turn out to be the riskiest in the long-term, with more than a 50% decline in value coupled with high degrees of persistence. Our results raise questions as to the safe haven characteristics of the newly-popular Bitcoin. Our findings are useful for policy makers and investors through a better understanding of differences in the potential for mean reversion provided by different asset classes.
COVID-19 reaction and recovery, Cryptocurrencies, precious metals, quantile unit root test
0275-5319
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Matkovskyy, Roman
14e03180-ad35-4db6-a9ff-81d62a4f6dc4
Jalan, Akanksha
09fcab2b-7074-47c3-94c3-e1060d7c4d41
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Matkovskyy, Roman
14e03180-ad35-4db6-a9ff-81d62a4f6dc4
Jalan, Akanksha
09fcab2b-7074-47c3-94c3-e1060d7c4d41

Yarovaya, Larisa, Matkovskyy, Roman and Jalan, Akanksha (2021) The COVID-19 black swan crisis: Reaction and recovery of various financial markets. Research in International Business and Finance, 59, [101521]. (doi:10.1016/j.ribaf.2021.101521).

Record type: Article

Abstract

This paper examines and compares financial market reaction and recovery of four broad classes of financial assets – equity indexes, precious metals, 10-year benchmark bonds and cryptocurrencies, to the COVID-19 pandemic. The data set comprises daily observations of close prices in the selected markets from 17-04-2018 to 20-06-2021. Using the Yang and Zhao (2020) and Koenker and Xiao (2004) quantile unit-root tests for return persistence, we find heterogeneity in reactions and recovery patterns not only across asset classes, but also within them. Specifically, we find strong potential for mean reversion in equity markets even at high levels of shocks. While gold offers limited mean reversion, platinum shows very strong resistance to the COVID. Government bonds show small declines in value to the COVID in addition to high persistence. Cryptocurrencies, as a group, turn out to be the riskiest in the long-term, with more than a 50% decline in value coupled with high degrees of persistence. Our results raise questions as to the safe haven characteristics of the newly-popular Bitcoin. Our findings are useful for policy makers and investors through a better understanding of differences in the potential for mean reversion provided by different asset classes.

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Accepted/In Press date: 28 August 2021
e-pub ahead of print date: 3 September 2021
Keywords: COVID-19 reaction and recovery, Cryptocurrencies, precious metals, quantile unit root test

Identifiers

Local EPrints ID: 451839
URI: http://eprints.soton.ac.uk/id/eprint/451839
ISSN: 0275-5319
PURE UUID: 2a29229b-de95-46ea-b60f-9275c046609b
ORCID for Larisa Yarovaya: ORCID iD orcid.org/0000-0002-9638-2917

Catalogue record

Date deposited: 29 Oct 2021 16:36
Last modified: 09 Jan 2022 04:06

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Contributors

Author: Larisa Yarovaya ORCID iD
Author: Roman Matkovskyy
Author: Akanksha Jalan

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