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Financial earthquakes: SARS-CoV-2 news shock propagation in stock and sovereign bond markets

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  • Pagnottoni, Paolo
  • Spelta, Alessandro
  • Pecora, Nicolò
  • Flori, Andrea
  • Pammolli, Fabio

Abstract

The SARS-CoV-2 epidemics outbreak has shocked global financial markets, inducing policymakers to put in place unprecedented interventions to inject liquidity and to counterbalance the negative impact on worldwide financial systems. Through the lens of statistical physics, we examine the financial volatility of the reference stock and bond markets of the United States, United Kingdom, Spain, France, Germany and Italy to quantify the effects of country-specific socio-economic and political announcements related to the epidemics. Main results show that financial markets exhibit heterogeneous behaviours towards news on the epidemics, with the Italian and German bond markets responding with major delays to shocks. Additionally, credit markets tend to be slower than equity markets in adjusting prices after shocks, hence being slower at incorporating the effects of such news.

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  • Pagnottoni, Paolo & Spelta, Alessandro & Pecora, Nicolò & Flori, Andrea & Pammolli, Fabio, 2021. "Financial earthquakes: SARS-CoV-2 news shock propagation in stock and sovereign bond markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 582(C).
    • Handle: RePEc:eee:phsmap:v:582:y:2021:i:c:s0378437121005136
    DOI: 10.1016/j.physa.2021.126240
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    Cited by:

    1. Pagnottoni, Paolo & Spelta, Alessandro, 2024. "Hedging global currency risk: A dynamic machine learning approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 649(C).
    2. Vladimir Balash & Alexey Faizliev & Sergei Sidorov & Elena Chistopolskaya, 2021. "Conditional Time-Varying General Dynamic Factor Models and Its Application to the Measurement of Volatility Spillovers across Russian Assets," Mathematics, MDPI, vol. 9(19), pages 1-31, October.
    3. Jin, Lifu & Zheng, Bo & Ma, Jiahao & Zhang, Jiu & Xiong, Long & Jiang, Xiongfei & Li, Jiangcheng, 2022. "Empirical study and model simulation of global stock market dynamics during COVID-19," Chaos, Solitons & Fractals, Elsevier, vol. 159(C).
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    7. Farrah Dina Abd Razak & Norlin Khalid & Mohd Helmi Ali, 2021. "Asymmetric Impact of Institutional Quality on Environmental Degradation: Evidence of the Environmental Kuznets Curve," Sustainability, MDPI, vol. 13(22), pages 1-24, November.
    8. Nicoló Andrea Caserini & Paolo Pagnottoni, 2022. "Effective transfer entropy to measure information flows in credit markets," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 31(4), pages 729-757, October.
    9. Pagnottoni, Paolo & Spelta, Alessandro & Flori, Andrea & Pammolli, Fabio, 2022. "Climate change and financial stability: Natural disaster impacts on global stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 599(C).

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    More about this item

    Keywords

    Statistical physics; Omori law; Bond markets; Stock markets; News; COVID-19;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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