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Remarks on the behaviour of financial market efficiency during the COVID-19 pandemic. The case of VIX

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  • DIMA, Bogdan
  • DIMA, Ştefana Maria
  • IOAN, Roxana

Abstract

This paper investigates the Chicago Board Option Exchange Volatility Index's (‘VIX’) response to the COVID-19 pandemic crisis, in terms of information efficiency. First, we estimate an Efficiency Index over rolling windows, based on closing levels, for a period between 1995-01-03 and 2020-12-30. Second, we check for the presence of deterministic chaos in efficiency series, by using the largest Lyapunov exponent and sample, as well as permutation entropy. However, we do not find that these estimators provide a clear evidence of a substantial change in VIX's efficiency during 2020, in terms of deterministic chaos and irregular dynamics.

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  • DIMA, Bogdan & DIMA, Ştefana Maria & IOAN, Roxana, 2021. "Remarks on the behaviour of financial market efficiency during the COVID-19 pandemic. The case of VIX," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000489
    DOI: 10.1016/j.frl.2021.101967
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    5. Scherf, Matthias & Matschke, Xenia & Rieger, Marc Oliver, 2022. "Stock market reactions to COVID-19 lockdown: A global analysis," Finance Research Letters, Elsevier, vol. 45(C).
    6. Ha Che-Ngoc & Nga Do-Thi & Thao Nguyen-Trang, 2023. "Profitability of Ichimoku-Based Trading Rule in Vietnam Stock Market in the Context of the COVID-19 Outbreak," Computational Economics, Springer;Society for Computational Economics, vol. 62(4), pages 1781-1799, December.
    7. Iyer, Subramanian Rama & Simkins, Betty J., 2022. "COVID-19 and the Economy: Summary of research and future directions," Finance Research Letters, Elsevier, vol. 47(PB).
    8. Claudiu Tiberiu Albulescu & Aviral Kumar Tiwari & Phouphet Kyophilavong, 2021. "Nonlinearities and Chaos: A New Analysis of CEE Stock Markets," Mathematics, MDPI, vol. 9(7), pages 1-13, March.
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    12. Liu, Min & Lee, Chien-Chiang, 2022. "Is gold a long-run hedge, diversifier, or safe haven for oil? Empirical evidence based on DCC-MIDAS," Resources Policy, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    COVID-19; efficiency; deterministic chaos; largest Lyapunov exponent; sample entropy; permutation entropy;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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