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Evidence of Stock Market Contagion during the COVID-19 Pandemic: A Wavelet-Copula-GARCH Approach

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  • Huthaifa Alqaralleh

    (Department of Economics, Business and Finance, Mutah University, Karak 61710, Jordan)

  • Alessandra Canepa

    (Department of Economic and Statistics Cognetti De Martiis, University of Turin, Lungo Dora Siena 100A, 10153 Turin, Italy
    Department of Economics and Finance, Brunel University London, Uxbridge UB8 3PH, UK)

Abstract

In this study, we propose a wavelet-copula-GARCH procedure to investigate the occurrence of cross-market linkages during the COVID-19 pandemic. To explore cross-market linkages, we distinguish between regular interdependence and pure contagion, and associate changes in the correlation between stock market returns at higher frequencies with contagion, whereas changes at lower frequencies are associated with interdependence that relates to spillovers of shocks resulting from the normal interdependence between markets. An empirical analysis undertaken on six major stock markets reveals evidence of long-run interdependence between the markets under consideration before the start of the COVID-19 pandemic in December 2019. However, after the health crisis began, strong evidence of pure contagion among stock markets was detected.

Suggested Citation

  • Huthaifa Alqaralleh & Alessandra Canepa, 2021. "Evidence of Stock Market Contagion during the COVID-19 Pandemic: A Wavelet-Copula-GARCH Approach," JRFM, MDPI, vol. 14(7), pages 1-18, July.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:7:p:329-:d:594977
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    References listed on IDEAS

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