Efficiency of the financial markets during the COVID-19 crisis: Time-varying parameters of fractional stable dynamics

By Ayoub Ammy-Driss, Matthieu Garcin. Physica A: Statistical Mechanics and its Applications, 2020

59 citations recorded by the source corpus.

This paper investigates the impact of COVID-19 on financial markets. It focuses on the evolution of the market efficiency, using two efficiency indicators: the Hurst exponent and the memory parameter of a fractional Levy-stable motion. The second approach combines, in the same model of dynamic, an alpha-stable distribution and a dependence structure between price returns. We provide a dynamic estimation method for the two efficiency indicators. This method introduces a free parameter, the discount factor, which we select so as to get the best alpha-stable density forecasts for observed price returns. The application to stock indices during the COVID-19 crisis shows a strong loss of efficiency for US indices. On the opposite, Asian and Australian indices seem less affected and the inefficiency of these markets during the COVID-19 crisis is even questionable.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2f46d725cd297191f7ba74c36eff3f2b55068894

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In Economics and Econometrics

  1. Faheem Aslam
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  3. Mrestyal Khan
  4. Paulo Ferreira
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In Finance

  1. Faheem Aslam
  2. Maaz Khan
  3. Mrestyal Khan
  4. Paulo Ferreira
  5. Bilal Ahmed Memon
  6. Yasir Tariq Mohmand

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