Title: Financial contagion among stock markets and portfolio risk during the COVID-19 crisis

Authors: Mohamed Yousfi; Houssam Bouzgarrou

Addresses: Higher Institute of Commercial Studies of Sousse (IHEC Sousse), University of Sousse, Sousse 4000, Tunisia ' Higher Institute of Finance and Taxation, University of Sousse, Sousse 4000, Tunisia

Abstract: This paper investigates the effects of the COVID-19 crisis on the co-movements and the risk based contagions between five developed stock markets for the daily data span from January, 2018 to February, 2022. We examine the co-movement using wavelet coherence and quantify the portfolio risk via wavelet value-at-risk ratio. The findings indicate a high degree of positive co-movements between stock markets at various investment horizons during entire sample period. Whereas, the stock market pairs show a high connectedness during the COVID-19 pandemic over the short-term compared to pre-COVID-19 periods, suggesting that the COVID-19 pandemic supports the positive nexus between stock markets. Moreover, the value-at-risk ratio indicates that the contagion between the stock markets, increases the portfolio risk over the long-term, and the pandemic also affects the value-atrisk ratio over the short- and long-term. Therefore, we conclude that portfolio diversification and hedging as a strategies for risk management are a good practice.

Keywords: COVID-19; financial market; co-movement; contagion; portfolio risk.

DOI: 10.1504/IJMEF.2023.130887

International Journal of Monetary Economics and Finance, 2023 Vol.16 No.2, pp.121 - 138

Received: 01 Mar 2022
Accepted: 21 Jan 2023
Published online: 13 May 2023 *

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