Volatility in International Sovereign Bond Markets: The role of government policy responses to the COVID-19 pandemic

Government Bonds and COVID-19. An International Evaluation Under Different Market States

This study evaluates the sensitivity of government bond yields from the countries most affected by the COVID-19 pandemic to variations in some international risk factors during the period between January 2020 and April 2021. This sample period allows us to focus the study on the first, and the subsequent waves of the COVID-19 pandemic. Specifically, we propose an extended risk factor model estimated using the quantile regression approach. In addition, this study compares the COVID-19 pandemic period with a pre-pandemic and a post-vaccination period. Interesting differences among them are observed, remarking that gold is the key risk factor during the pandemic, whereas VIX and crude oil play that role in the pre-pandemic and the post-vaccination periods, respectively, mainly for bearish states. As expected, the explanatory power of the model is better at extreme quantiles, showing relevant differences between sensitivities, because the found effects are quantile-, country- and risk factor-dependent. The results during the pandemic are robust to the inclusion of a country-specific factor and a factor accounting for the mutual influence of the government bonds.

Connectedness between Defi assets and equity markets during COVID-19: A sector analysis

This paper explores the dynamic connectedness between Defi assets and sector stock markets focused around the COVID-19 pandemic crisis. For that aim, this research applies the TVP-VAR model, and it also computes the optimal weights and hedge ratios for the Defi assets-sector equity portfolios using the DCC-GARCH model. Our main findings reveal that static connectedness is slightly economy- and sector-dependent. Regarding the dynamic connectedness, as expected, the total spillover index changes over time, showing a cruel impact of the global pandemic declaration. Net spillover indices show relevant differences between the Defi assets and certain sectors (net receivers) and sectors such as industrials, materials and information technology (time-varying net transmitters). Finally, the optimal hedge ratios reveal similar levels of coverage in all the periods analyzed, with slight upturns in the cost of such coverage in the crisis period caused by COVID-19.

The impact of the COVID-19 outbreak on the connectedness of the BRICS's term structure

This study aims to examine the impact of the different waves of the COVID-19 pandemic on the connectedness of the BRICS (Brazil, Russia, India, China, and South Africa) term structure of interest rates and its components (level, slope and curvature). For that purpose, this research applies the time-varying parameter vector autoregression (TVP-VAR) approach in order to assess the direction of spillovers among countries and factors and measure their contribution to the connectedness system. Our results show that the total connectedness measure changes over time, and the level and curvature components show connectedness that persists longer than the slope component, both in the first wave of the COVID-19 pandemic. Brazil and South Africa would appear as net transmitters of shocks, whereas China and India are net receivers. Finally, the most significant differences in the net dynamic connectedness between transmitters and receivers were focused on before and during the first wave of the COVID-19 pandemic crisis. Some additional impacts were observed during the last waves of the coronavirus pandemic. To our best knowledge, this is the first study on the connectedness between the yield curves of the BRICS economies and the COVID-19 crisis uncertainty according to the coronavirus MCI, by decomposing the yield curve into its factors (level, slope, and curvature).

Determinants of Qualified Investor Sentiment during the COVID-19 Pandemic in North America, Asia, and Europe

This work delineates the factors determining investor sentiment in specific regions during the pandemic and the influence of attitudes towards vaccination. The findings show that the reactions of knowledgeable investors in different regions to the economic effects of the pandemic were not uniform but depended on a variety of individual factors. Risk perception varied widely due to idiosyncrasies in specific countries and regions, the level of pandemic information, reaction to case reports and deaths, attitudes towards vaccination, lockdown compliance, and government measures to support businesses. These various elements combined to create different outlooks in the minds of investors that strongly influenced their investment strategies. For this investigation, we tested three estimation models: the classic robust standard error for time series regression, the new robust standard errors regression, and the Prais robust estimation. This study applied the lasso system of machine learning to select relevant explanatory variables. The novelty of our work resides in its analysis of the conduct of informed investors, using a reliable proxy, and the discussion of how government policies and different pandemic-related factors, specifically the vaccination status, affected investor sentiment in different regions. As for practical implications, an understanding of how the various economic factors related to the pandemic influenced the behavior of qualified investors in different regions can help regulators, government leaders, fund managers, and investors deal with a future virus outbreak.

The impact of government interventions on cross-listed securities: Evidence from the COVID-19 pandemic

This paper examines the impact of COVID-19 related governments' interventions on the volatility and liquidity of American depository receipts (ADRs). Using a wide dataset of 387 ADRs from 34 countries around the globe, we provide an examination of the effect of economic and non-economic interventions on the quality of these cross-listed securities. Our results suggest that closures, restrictions, as well as containment health steps implemented during the outbreak period of the pandemic, seem to deteriorate the ADRs' liquidity and stability. The negative impact holds for different control variables and regression specifications and is not subsumed by the inclusion of the daily confirmed cases as a proxy for the severity of the pandemic. The information documented here may assist financial market participants in their risk management. The findings could also be important for policymakers for their preparedness plans in case of future crises.

Did the COVID-19 pandemic (really) positively impact the IPO Market? An Analysis of information uncertainty

Anecdotal evidence seems to suggest that the initial public offering (IPO) market performed remarkably well through the COVID-19 pandemic. To further understand this peculiar observation, we carry out a comprehensive analysis of IPOs during the pandemic vis-a-vis IPOs before the pandemic. Our findings imply that IPOs during the pandemic experience greater information uncertainty compared to those before the pandemic, and this greater uncertainty is mainly driven by the IPOs from the high-technology and the healthcare sectors. Furthermore, we find that an average IPO firm experiences larger underpricing and more post-IPO return volatility as the pandemic and the associated government responses increase in severity before the offering. Overall, our study indicates that the COVID-19 pandemic had an adverse impact on the IPO market.

Responses of the International Bond Markets to COVID-19 Containment Measures

Using an international sample during the COVID-19 outbreak, our study gives evidence that COVID-19 containment measures impact volatility in the international bond markets in different ways. We found that the positive effect of increasing new COVID-19 vaccinations markedly mitigates bond market volatility, while non-pharmaceutical government interventions resembling bad news increase volatility in bond markets. Besides this, changes in total COVID-19 cases and total deaths have co-movement and a significant relationship with this volatility. Our results imply that the investors’ responses to the trigger of increased uncertainty seem to differ in a way that depends on bad or good news as a reflection of the possibility of pandemic control and the health of the economy. The mass vaccinations not only signal a lower probability of stringent government responses to the pandemic but also stabilize investors’ behavior and mitigate compliance fears to open a period of safe living with coronavirus. Our findings are still robust when using alternative measures of independent variables and different forecasting models of conditional volatility.

The price of COVID-19-induced uncertainty in the options market

This paper investigates the pricing of uncertainty associated with the COVID-19 responses for 28 countries/regions in 2020. We find that such uncertainty is priced in the equity options market. Specifically, there is a price premium for options that provide protection to hedge against price risk, variance risk, and tail risk caused by a variety of World Health Organization (WHO) announcements and the lockdown announcements from governments on COVID-19. Moreover, such options tend to be more expensive when the governments place stricter restrictions.

Term spreads and the COVID-19 pandemic: Evidence from international sovereign bond markets

We explore the impact of the COVID-19 pandemic on the term structure of interest rates. Using data from developed and emerging countries, we demonstrate that the expansion of the disease significantly affects sovereign bond markets. The growth of confirmed cases significantly widens the term spreads of government bonds. The effect is independent of government policy and monetary responses to COVID-19 and robust to many considerations.

Sovereign Bond Market Shock Spillover Over Different Maturities: A Journey from Normal to Covid-19 Period

With application of Diebold and Yilmaz’s (Int J Forecast 28(1):57–66, 2012) spillover approach, we examine shock spillover in international sovereign bond yields over short, medium, and long term maturities for major eight economies. By scrutinizing the data from 1st January 2013 to 12th November 2020, we explored that irrespective of pre-covid-19 or covid-19 period, shock spillover in bond yields across markets are much stronger over long and medium maturities relative to short-term maturity. Moreover, shock spillover of bond yields has amplified manifold during Covid-19, irrespective of their maturities compared to pre-Covid-19 period. The magnitude of shock spillovers remains low with short-term maturity. Assessing the relationship between international sovereign bond markets (SBMs) contributes to our understanding and is also crucial to the investors (both domestic and foreign) in investing in SBMs.

COVID-19 Vaccinations and the Volatility of Energy Companies in International Markets

The COVID-19 pandemic has elevated both the risk and volatility of energy companies. Can mass vaccinations restore stability within this sector? To answer this question, we investigate stock market data from fifty-eight countries from January 2020 to April 2021. We document that vaccination programs assist in decreasing the volatility of energy stocks around the world. The drop in volatility is statistically and economically significant and robust to many considerations. The observed phenomenon survives a broad battery of control variables; it is also independent of the employed regression model or the volatility measurement approach. Moreover, the effect is not driven by the dynamics of the pandemic itself or the associated government interventions. Finally, we find the influence of vaccinations on energy stock volatility to be more pronounced in developed markets rather than in emerging ones. Our findings bear clear practical implications: policy makers around the world should consider the essential role of vaccinations in the energy sector.

Banking sector reactions to COVID-19: The role of bank-specific factors and government policy responses

This paper examines the impact of bank-specific factors and variations in the context of stringency of government policy responses on bank stock returns because of the COVID-19 pandemic. A sample of 1,927 publicly listed banks from 110 countries is used for the period of the first major wave of COVID-19, that is, January to May 2020. Our findings indicate that stock returns of banks with higher capitalization and deposits, more diversification, lower non-performing loans, and larger size are more resilient to the pandemic. While banks' environment and governance scores do not have a significant impact, higher social and corporate social responsibility strategy scores intensify the negative stock price reaction to COVID-19. We further observe that the pandemic-induced reduction in bank stock prices is mitigated as the strictness of government policy responses increases, mainly through economic responses such as income support, debt and contract relief, and fiscal measures from governments.

COVID-19, government interventions and emerging capital markets performance

In this study, we explore the impact of government intervention to contain the spread of COVID-19 in emerging countries on the performance of their leading stock indices. We retrieved data on the performance of 25 international capital market indices included in the MSCI Emerging Markets Index and data about the closures, economic, and health measures imposed in each country examined. Overall, our findings show that government restrictions are associated with negative market returns, possibly due to the anticipated adverse effect to the economy. The adverse effect is more evident when closures are imposed. The market response to economic stimulus is mild but varies depending on the type of intervention imposed, much as with the health measures. Public campaigns may raise public awareness about COVID-19, but they can also increase the public's fear of the pandemic, reflected in the negative response in capital markets. The results are essential for understanding the trends and fluctuations in emerging markets during this current crisis and for preparing for crises in the future.

Impact of the Covid-19 induced panic on the Environmental, Social and Governance leaders equity volatility: A time-frequency analysis

We apply wavelet analyses to study how the Covid-19 fueled panic influenced the volatility of ESG (environmental, social and governance) leaders' indices encompassing the World, the USA, Europe, China, and the Emerging Markets. We document intervals of the low, medium, and high coherence between the Coronavirus Panic Index and the price moves of the ESG Leaders indices. The low coherence intervals signify the diversification potential of ESG investments during a systemic pandemic such as Covid-19. We document differences in the pattern exhibited by various geographical indices highlighting their potential role for designing cross-geography hedge strategies, both now and in the future.

The impact of COVID-19-related media coverage on the return and volatility connectedness of cryptocurrencies and fiat currencies

This research explores the impact of COVID-19-related media coverage on the dynamic return and volatility connectedness of the three dominant cryptocurrencies (Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP)) and the fiat currencies of the euro, GBP and Chinese yuan. The sample period covers the first and second devasting waves of the COVID-19 pandemic crisis and ranges from January 1, 2020, to December 31, 2020. The dynamic return and volatility connectedness measures are estimated using the time varying parameter-VAR approach. Our return connectedness analysis shows that the media coverage index (only before the first wave) and the cryptocurrencies are the net transmitters of shocks while the fiat currencies are the net receivers of shocks. Similar results are obtained in terms of volatility, except for the euro, which shows a clear net receiver profile in January and February. This fiat currency (the euro) became a net transmitter in March and during the first wave of the COVID-19 crisis, which possibly shows the virulence of the pandemic on the European continent. Moreover, the most relevant differences between the net dynamic (return and volatility) connectedness of these two groups of currencies are focused on the beginning of the sample period, just before the first wave of the SARS-CoV-2 pandemic crisis, although some differences are observed during the first and second waves of the coronavirus outbreak.

The impact of Covid-19 on commodity markets volatility: Analyzing time-frequency relations between commodity prices and coronavirus panic levels

We apply wavelet analyses to study how the Covid pandemic influenced the volatility of commodity prices, covering various classes of commodities. We document the intervals of low, medium, and high coherence between the coronavirus panic index and the moves of the commodity prices. The low coherence intervals indicate the diversification potential of commodity investments during a systemic pandemic such as Covid-19. We document differences in the observed patterns per commodity category and evidence their potential role for designing cross-assets hedge strategies based on investments in commodities.