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The day after tomorrow: financial repercussions of COVID-19 on systemic risk

Author

Listed:
  • David Vidal-Tomás

    (Universitat Jaume I. Department of Economics)

  • Rocco Caferra

    (Universitat Jaume I. Department of Economics
    University of Bari Aldo Moro)

  • Gabriele Tedeschi

    (University of Bari Aldo Moro)

Abstract

In this paper, we study the financial repercussions of COVID-19 and the effect of anti-epidemic measures on financial markets. By using a composite dataset containing stock market indices of 10 countries characterized by heterogeneous levels of contagion, the daily COVID-19 cases and the 108 more restrictive measures implemented to limit the virus from 31/12/2019 to 13/03/2020, we examine the emergence of financial systemic risk, its speed of propagation and the effectiveness of the policies implemented to curb it. On the one hand, the spread of contagion and its transmission on financial markets are investigated via a lagged cross-correlation analysis. Our results show the emergence of systemic risk characterized by a high speed of diffusion. On the other hand, an augmented AR(1)-EGARCH(1,1) model is applied to examine the impact of anti-COVID-19 “policies on financial markets. We show that, regardless of the level of contagion, the restrictive measures are not able to contain the virus-induced investors panic in the first months of the epidemic.

Suggested Citation

  • David Vidal-Tomás & Rocco Caferra & Gabriele Tedeschi, 2022. "The day after tomorrow: financial repercussions of COVID-19 on systemic risk," Review of Evolutionary Political Economy, Springer, vol. 3(1), pages 169-192, April.
    • Handle: RePEc:spr:revepe:v:3:y:2022:i:1:d:10.1007_s43253-021-00059-y
    DOI: 10.1007/s43253-021-00059-y
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    More about this item

    Keywords

    COVID-19; Policy measures; Stock markets;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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