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Register a new userExamining the Dynamic Asset Market Linkages under the COVID-19 Global Pandemic
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Akihiko Noda
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This study examines the dynamic asset market linkages under the COVID-19 global pandemic based on market efficiency, in the sense of Fama (1970). Particularly, we estimate the joint degree of market efficiency by applying Ito et al.s (2014; 2017) Generalized Least Squares-based time-varying vector autoregression model. The empirical results show that (1) the joint degree of market efficiency changes widely over time, as shown in Los (2004) adaptive market hypothesis, (2) the COVID-19 pandemic may eliminate arbitrage and improve market efficiency through enhanced linkages between the asset markets; and (3) the market efficiency has continued to decline due to the Bitcoin bubble that emerged at the end of 2020.
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In this note, we discuss the impact of the COVID-19 outbreak from the perspective of the market-structure. We observe that the US market-structure has dramatically changed during the past four weeks and that the level of change has followed the number of infected cases reported in the USA. Presently, market-structure resembles most closely the structure during the middle of the 2008 crisis but there are signs that it may be starting to evolve into a new structure altogether. This is the first article of a series where we will be analyzing and discussing market-structure as it evolves to a state of further instability or, more optimistically, stabilization and recovery.
During any unique crisis, panic sell-off leads to a massive stock market crash that may continue for more than a day, termed as mainshock. The effect of a mainshock in the form of aftershocks can be felt throughout the recovery phase of stock price. As the market remains in stress during recovery, any small perturbation leads to a relatively smaller aftershock. The duration of the recovery phase has been estimated using structural break analysis. We have carried out statistical analyses of the 1987 stock market crash, 2008 financial crisis and 2020 COVID-19 pandemic considering the actual crash-times of the mainshock and aftershocks. Earlier, such analyses were done considering an absolute one-day return, which cannot capture a crash properly. The results show that the mainshock and aftershock in the stock market follow the Gutenberg-Richter (GR) power law. Further, we obtained a higher $beta$ value for the COVID-19 crash compared to the financial-crisis-2008 from the GR law. This implies that the recovery of stock price during COVID-19 may be faster than the financial-crisis-2008. The result is consistent with the present recovery of the market from the COVID-19 pandemic. The analysis shows that the high magnitude aftershocks are rare, and low magnitude aftershocks are frequent during the recovery phase. The analysis also shows that the distribution $P(tau_i)$ follows the generalized Pareto distribution, i.e., $displaystyle~P(tau_i)proptofrac{1}{{1+lambda(q-1)tau_i}^{frac{1}{(q-1)}}}$, where $lambda$ and $q$ are constants and $tau_i$ is the inter-occurrence time. This analysis may help investors to restructure their portfolios during a market crash.
We show that the COVID-19 pandemic under social distancing exhibits universal dynamics. The cumulative numbers of both infections and deaths quickly cross over from exponential growth at early times to a longer period of power law growth, before eventually slowing. In agreement with a recent statistical forecasting model by the IHME, we show that this dynamics is well described by the erf function. Using this functional form, we perform a data collapse across countries and US states with very different population characteristics and social distancing policies, confirming the universal behavior of the COVID-19 outbreak. We show that the predictive power of statistical models is limited until a few days before curves flatten, forecast deaths and infections assuming current policies continue and compare our predictions to the IHME models. We present simulations showing this universal dynamics is consistent with disease transmission on scale-free networks and random networks with non-Markovian transmission dynamics.
The global COVID-19 pandemic has led to the online proliferation of health-, political-, and conspiratorial-based misinformation. Understanding the reach and belief in this misinformation is vital to managing this crisis, as well as future crises. The results from our global survey finds a troubling reach of and belief in COVID-related misinformation, as well as a correlation with those that primarily consume news from social media, and, in the United States, a strong correlation with political leaning.
Several analytical models have been used in this work to describe the evolution of death cases arising from coronavirus (COVID-19). The Death or `D model is a simplified version of the SIR (susceptible-infected-recovered) model, which assumes no recovery over time, and allows for the transmission-dynamics equations to be solved analytically. The D-model can be extended to describe various focuses of infection, which may account for the original pandemic (D1), the lockdown (D2) and other effects (Dn). The evolution of the COVID-19 pandemic in several countries (China, Spain, Italy, France, UK, Iran, USA and Germany) shows a similar behavior in concord with the D-model trend, characterized by a rapid increase of death cases followed by a slow decline, which are affected by the earliness and efficiency of the lockdown effect. These results are in agreement with more accurate calculations using the extended SIR model with a parametrized solution and more sophisticated Monte Carlo grid simulations, which predict similar trends and indicate a common evolution of the pandemic with universal parameters.
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