The objective of this essay is to investigate the effects of Covid-19 on the volatility of individual asset markets as well as the correlation between those markets using the Dynamic Conditional Correlation GARCH methodology developed by Engle (2002). The investigated assets are the major world equity indices as well as oil, gold, and bitcoin. I have found significant volatility clustering over the entire spectrum of assets, as well as increases in the correlation between assets during the initial phase of the pandemic. Furthermore, gold and bitcoin are shown to exhibit relatively low correlations with the investigated equity markets and may hence act as important components of a robust portfolio during turbulent times. While no direct effect of Covid-19 related policy variables on the returns could be established for all assets, the results indicate that the response of financial markets was immediate and not dependent on the national exposure to the pandemic itself. Finally, all markets are shown to recover within a reasonably short time span.
Inhaltsverzeichnis (Table of Contents)
- Introduction
- Background
- Data
- Method
- Results and Discussion
- Conclusion
- References
- Appendices
- Imputed Data
- DCC Diagrams
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay investigates the impact of the Covid-19 pandemic on the volatility of individual asset markets and the correlation between them. The study focuses on major world equity indices, as well as Oil, Gold, and Bitcoin. The analysis reveals significant volatility clustering across all assets and increased correlation during the early phase of the pandemic.
- Volatility clustering in financial markets during the Covid-19 pandemic.
- Impact of Covid-19 news coverage on market volatility.
- Correlation between different asset classes during the pandemic.
- Potential of Gold and Bitcoin as portfolio diversification tools.
- Policy responses to the pandemic and their influence on financial markets.
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: This chapter sets the stage for the essay, introducing the Covid-19 pandemic, its global impact, and the resulting uncertainties in various sectors. It highlights the significance of financial markets as leading indicators and examines the interplay between financial market volatility and the real economy.
- Background: This section explores the existing literature on financial markets, emphasizing how the pandemic challenged traditional theories and led to a shift towards viewing financial markets as complex systems with interconnected agents. It discusses the importance of volatility as a key factor in economic decision-making and the current limitations in understanding its origins and transmission.
- Data: This chapter introduces the data used in the empirical analysis. It provides details about the specific asset classes included in the study and the time period under consideration.
- Method: This chapter outlines the methodology employed in the analysis, specifically focusing on multivariate volatility modelling and the chosen analytical approach.
- Results and Discussion: This chapter presents and discusses the findings of the empirical investigation. It examines the volatility patterns observed in different asset markets and explores the correlations between them during the pandemic.
Schlüsselwörter (Keywords)
This essay focuses on the volatility of financial markets, particularly during the Covid-19 pandemic. Key concepts include asset volatility, correlation analysis, dynamic conditional correlation (DCC) models, financial contagion, portfolio diversification, and the impact of policy responses on market behavior.
- Citar trabajo
- Niklas Humann (Autor), 2022, The Volatility In Financial Markets During The Covid-19 Pandemic, Múnich, GRIN Verlag, https://www.grin.com/document/1192934
