Journal
INTERNATIONAL REVIEW OF FINANCIAL ANALYSIS
Volume 77, Issue -, Pages -Publisher
ELSEVIER SCIENCE INC
DOI: 10.1016/j.irfa.2021.101828
Keywords
TVP-DY model; COVID-19; Spillover effects; Network analysis; Hedge ability
Categories
Funding
- National Natural Science Foundation of China [71974208, 71633006, 71874210]
- Special Project of Hunan Provincial Think Tank [18ZWB20]
- Top think tank of Central South University [2020znzk05]
- Major Project of National SociSal Science Fund [18ZDA061]
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The study found that COVID-19 had a significant impact on spillover effects between energy and stock markets, with energy market becoming a significant risk recipient of the stock market. Investors need to adjust portfolio strategies accordingly due to huge changes in the hedge ratio, optimal portfolio weights, and hedge effectiveness after the COVID-19 outbreak.
This study combined time-varying parameter vector autoregression (TVP-VAR) and a spillover index model to analyze the static, total, and net spillover effects of energy and stock markets before and after the COVID-19 outbreak. A network method was also used to depict structural changes more intuitively. Furthermore, we calculated and compared changes in the hedge ratio, optimal portfolio weights, and hedge effectiveness to guide investors to adjust portfolio strategies during COVID-19. The main findings were as follows: First, COVID-19 had a significant impact on spillover effects, and the average value of total spillover index increased by 19.94% compared with that before the epidemic. Second, the energy market was an important risk recipient of the stock market before COVID-19, and the extent of risk acceptance increased after the COVID-19 outbreak. Third, the hedging ratio, optimal portfolio weights, and hedge effectiveness showed huge changes after the COVID-19 outbreak, requiring investors to adjust their portfolio strategies.
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