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Global Market's Diagnosis on Coronavirus : A Tug of War between Hope and Fear

Author

Listed:
  • Refk Selmi

    (IRMAPE - Institut de Recherche en Management et Pays Emergents - ESC PAU - Ecole Supérieure de Commerce, Pau Business School)

  • Jamal Bouoiyour

    (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour, IRMAPE - Institut de Recherche en Management et Pays Emergents - ESC PAU - Ecole Supérieure de Commerce, Pau Business School)

Abstract

The increasing propagation of the coronavirus pushes to urgently rethink the possible consequences for the global markets. The coronavirus combines demand, supply and uncertainty shocks, that would be harmful to the real economy mainly owing to the shutdown of factories and offices and travel restrictions. This would generate international spillover effects. In this article, we provide a first analysis of the stock price responses to the outbreak of COVID-19. To this end, we use an improved event study methodology to test how G7 (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) stock markets react to the rapid emergence of the novel epidemic.Then, we employ the volatility spillover procedure of Diebold and Yilmaz's (2012) to discern to what extent can China be a risk exporter to the G7 countries. Our results reveal that all the G7 stock markets are suffering from uncertainty caused by the COVID-19, but the responses to this shock differ from country to country. Difficulties in trade and travel interrupted the flow of goods and services, with cascading impacts on industries where supply chains depend hugely on supplies from China. In the current uncertain times, China is likely to be the major volatility transmitter (followed by the United States), whereas Japan, Germany, France and Italy are likely to be volatility receivers. The global spread of coronavirus may be an occasion for global value chains to rethink their global strategies.

Suggested Citation

  • Refk Selmi & Jamal Bouoiyour, 2020. "Global Market's Diagnosis on Coronavirus : A Tug of War between Hope and Fear," Working Papers hal-02514428, HAL.
    • Handle: RePEc:hal:wpaper:hal-02514428
    Note: View the original document on HAL open archive server: https://hal.science/hal-02514428
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    References listed on IDEAS

    as
    1. Cornelis Gardebroek & Manuel A. Hernandez & Miguel Robles, 2016. "Market interdependence and volatility transmission among major crops," Agricultural Economics, International Association of Agricultural Economists, vol. 47(2), pages 141-155, March.
    2. repec:fpr:export:1344 is not listed on IDEAS
    3. Jamal Bouoiyour & Refk Selmi, 2020. "Coronavirus Spreads and Bitcoin's 2020 Rally: Is There a Link ?," Working Papers hal-02493309, HAL.
    4. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    5. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
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    Cited by:

    1. Asima Saleem, 2022. "Action for Action: Mad COVID-19, Falling Markets and Rising Volatility of SAARC Region," Annals of Data Science, Springer, vol. 9(1), pages 33-54, February.
    2. Arif, Muhammad & Naeem, Muhammad Abubakr & Farid, Saqib & Nepal, Rabindra & Jamasb, Tooraj, 2022. "Diversifier or more? Hedge and safe haven properties of green bonds during COVID-19," Energy Policy, Elsevier, vol. 168(C).
    3. Farzami, Yasmine & Gregory-Allen, Russell & Molchanov, Alexander & Sehrish, Saba, 2021. "COVID-19 and the liquidity network," Finance Research Letters, Elsevier, vol. 42(C).
    4. Omer Ahmed Sayed & Hussein Eledum, 2023. "The short‐run response of Saudi Arabia stock market to the outbreak of COVID‐19 pandemic: An event‐study methodology," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2367-2381, July.

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