A1106
Title: Regime-specific stock market behavior during the Covid-19 pandemic
Authors: Markus Haas - University of Kiel (Germany) [presenting]
Abstract: The Covid-19 pandemic and the measures taken to combat it seriously impacted many sectors of the economy worldwide, with many related aspects having been intensively studied and discussed in the literature. Markov-switching models are an effective tool to describe the different behaviour of financial variables in normal and crisis periods, and they have been used to describe the behaviour of stock markets during the Covid-19 pandemic and the related policy measures. The regime-specific stock market behaviour issue during the Covid-19 pandemic is reconsidered, with a particular focus on the travel and leisure sector. Using daily European and US stock market data, it is shown that an accurate timing and characterisation of the market regimes heavily depends on the appropriate specification of the underlying econometric model such that it accommodates the salient features of daily financial return series, with significant implications for risk management and portfolio allocation.
