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COVID-19 pandemic and financial innovations

Author

Listed:
  • Afees A. Salisu

    (Centre for Econometrics and Applied Research
    University of Pretoria)

  • Abdulsalam Abidemi Sikiru

    (Central Bank of Nigeria)

  • Philip C. Omoke

    (Alex Ekwueme Federal University)

Abstract

This study is motivated around the COVID-19 pandemic as a source of rising financial market risks. Hence, we investigate whether pandemic-induced risks can be hedged by alternative investment in financial innovations captured in exchange traded funds (ETFs). We explore the hedging effectiveness of sectoral ETFs along with a battery of robustness measures. Following the predictability analyses, we find that financial innovations captured in ETFs can effectively hedge both pandemic-induced and financially engineered market risks especially after controlling for the role of oil price in the predictive model. Our model provides better in-sample and out-of-sample forecasting accuracy and economic gains than the benchmark model and this is more pronounced for the COVID-19 pandemic period.

Suggested Citation

  • Afees A. Salisu & Abdulsalam Abidemi Sikiru & Philip C. Omoke, 2023. "COVID-19 pandemic and financial innovations," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(4), pages 3885-3904, August.
    • Handle: RePEc:spr:qualqt:v:57:y:2023:i:4:d:10.1007_s11135-022-01540-4
    DOI: 10.1007/s11135-022-01540-4
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    More about this item

    Keywords

    Pandemic; Hedge; Financial innovation; ETFs; Predictability;
    All these keywords.

    JEL classification:

    • I19 - Health, Education, and Welfare - - Health - - - Other
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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