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Direct and spillover portfolio effects of COVID-19

Author

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  • Ding, Haoyuan
  • Pu, Bo
  • Ying, Jiezhou

Abstract

This paper investigates the direct and spillover portfolio effects from the global outbreak of COVID-19. We find that an increase of the newly added cases of one specific country causes investors to significantly decrease their portfolio allocations in the outbreak countries (direct effect). Simultaneously, investors also decrease their allocations to other countries (spillover effect). In addition, we provide evidence and documentation that the transmission mechanism underlying foreign exposures matter to the above-mentioned portfolio effect. Moreover, we provide evidence for phase heterogeneity. The first wave of the COVID-19 pandemic has significant direct and spillover portfolio effects, but the impacts are weakened in second wave of the pandemic. The capital reallocation effect occurs only when the disease becomes global. Finally, our heterogeneities analysis shows that both local and spillover effects are mitigated when the economies are more developed and democratic and when the country has better health care facilities.

Suggested Citation

  • Ding, Haoyuan & Pu, Bo & Ying, Jiezhou, 2023. "Direct and spillover portfolio effects of COVID-19," Research in International Business and Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000582
    DOI: 10.1016/j.ribaf.2023.101932
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    More about this item

    Keywords

    International capital flow; Spillover effect; Foreign exposure; COVID-19;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F5 - International Economics - - International Relations, National Security, and International Political Economy
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • I1 - Health, Education, and Welfare - - Health

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