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The Relationship between COVID-19 and the Financial Market

In: The Economics of COVID-19

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  • Daniele Massacci

Abstract

This chapter discusses methodological challenges that may be faced by researchers interested in financial markets in relation to the COVID-19 pandemic. In particular, we focus on the behaviour of investors and consider three aspects that affect their investment decision process, namely comovement, cross-sectional asset pricing, and out-of-sample forecasting. We argue that, in relation to the pandemic, relevant financial time series such as asset returns exhibit nonlinear dynamics, which should be suitably incorporated within appropriate methodological tools. We discuss possible existing approaches that ensure that those nonlinearities are properly accounted for. Finally, possible areas of future research are touched upon.

Suggested Citation

  • Daniele Massacci, 2022. "The Relationship between COVID-19 and the Financial Market," Contributions to Economic Analysis, in: The Economics of COVID-19, volume 127, pages 71-84, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:ceazzz:s0573-855520220000296006
    DOI: 10.1108/S0573-855520220000296006
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