Chapters authored
COVID-19 Outbreak and Co-Movement of Global Markets: Insight from Dynamic Wavelet Correlation Analysis
The COVID-19 pandemic has in its short existence caused economic downturn and affected global markets. As would be expected, the occurrences of global crises or shocks often heighten uncertainties in international markets and increase correlations among them. Yet, not much is known of the actual impacts of COVID-19 on the behavior of global markets. This piece attempts to investigate whether the COVID-19 crisis has had any impact on the interrelationship structure of international markets using the cross-wavelet squared coherence and a dynamic wavelet correlation technique. It emerges that co-movements of the pairwise series become stronger (0.70–0.89) during the heightened periods labeled as epidemic and pandemic phases of COVID-19, than that of the periods that mark the pre-COVID-19 era (−0.49–0.36), hence announcing the influence of the crisis and eroding prospect of benefiting from a hedge instrument and/or a diversifier. Again, we observe that stock market-Global REITs have been the most influenced pair, showing significantly peaked co-movements (0.63–0.87) during the distinct phases of COVID-19. We attribute these developments to the loose monetary and financial measures implemented by central banks of the world. The findings hold important implications for economic and financial actors regarding diversification, hedging, and investment risk management.
Part of the book: Wavelet Theory