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COVID-19 and financial market efficiency: Evidence from an entropy-based analysis

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  • Wang, Jingjing
  • Wang, Xiaoyang

Abstract

This study assesses the market efficiency of S&P 500 Index, gold, Bitcoin and US Dollar Index during the extreme event of COVID-19 pandemic. Market efficiency is estimated by a multiscale entropy-based method for the scales of hourly and 1 to 30 business days. At all scales, four markets’ efficiency decreases sharply and persistently during February-March 2020. Market efficiency decreases the most in S&P 500 Index and the least in Bitcoin market. Bitcoin market efficiency is more resilient than others during the extreme event, which is an attractive feature to serve as a safe haven asset.

Suggested Citation

  • Wang, Jingjing & Wang, Xiaoyang, 2021. "COVID-19 and financial market efficiency: Evidence from an entropy-based analysis," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317025
    DOI: 10.1016/j.frl.2020.101888
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    5. Jacek Karasinski, 2022. "The Impact of the COVID-19 Outbreak on the Weak-Form Informational Efficiency of the Warsaw Stock Exchange (Wplyw wybuchu epidemii COVID-19 na efektywnosc informacyjna Gieldy Papierow Wartosciowych w ," Research Reports, University of Warsaw, Faculty of Management, vol. 2(37), pages 15-28.
    6. Bolek Monika & Gniadkowska-Szymańska Agata & Lyroudi Katerina, 2022. "Covid-19 Pandemic and Day-of-the-week Anomaly in Omx Markets," Central European Economic Journal, Sciendo, vol. 9(56), pages 158-177, January.
    7. Katsiampa, Paraskevi & Yarovaya, Larisa & Zięba, Damian, 2022. "High-frequency connectedness between Bitcoin and other top-traded crypto assets during the COVID-19 crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    8. Kumari, Vineeta & Kumar, Gaurav & Pandey, Dharen Kumar, 2023. "Are the European Union stock markets vulnerable to the Russia–Ukraine war?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    9. Faheem Aslam & Paulo Ferreira & Haider Ali, 2022. "Analysis of the Impact of COVID-19 Pandemic on the Intraday Efficiency of Agricultural Futures Markets," JRFM, MDPI, vol. 15(12), pages 1-18, December.
    10. Radhika Prosad Datta, 2023. "Regularity in forex returns during financial distress: Evidence from India," Papers 2308.04181, arXiv.org.
    11. Clement Moyo & Izunna Anyikwa & Andrew Phiri, 2023. "The Impact of Covid-19 on Oil Market Returns: Has Market Efficiency Being Violated?," International Journal of Energy Economics and Policy, Econjournals, vol. 13(1), pages 118-127, January.
    12. Boubaker, Sabri & Goodell, John W. & Pandey, Dharen Kumar & Kumari, Vineeta, 2022. "Heterogeneous impacts of wars on global equity markets: Evidence from the invasion of Ukraine," Finance Research Letters, Elsevier, vol. 48(C).
    13. Skwarek Mateusz, 2023. "Is Bitcoin an emerging market? A market efficiency perspective," Central European Economic Journal, Sciendo, vol. 10(57), pages 219-236, January.
    14. Assaf, Ata & Mokni, Khaled & Yousaf, Imran & Bhandari, Avishek, 2023. "Long memory in the high frequency cryptocurrency markets using fractal connectivity analysis: The impact of COVID-19," Research in International Business and Finance, Elsevier, vol. 64(C).
    15. Raza, Syed Ali & Shah, Nida & Guesmi, Khaled & Msolli, Badreddine, 2022. "How does COVID-19 influence dynamic spillover connectedness between cryptocurrencies? Evidence from non-parametric causality-in-quantiles techniques," Finance Research Letters, Elsevier, vol. 47(PA).
    16. Long, Shaobo & Zhang, Rui & Hao, Jing, 2022. "Asymmetric impact of Sino-US interest rate differentials and economic policy uncertainty ratio on RMB exchange rate," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    17. Montasser, Ghassen El & Charfeddine, Lanouar & Benhamed, Adel, 2022. "COVID-19, cryptocurrencies bubbles and digital market efficiency: sensitivity and similarity analysis," Finance Research Letters, Elsevier, vol. 46(PA).
    18. Apergis, Nicholas, 2022. "COVID-19 and cryptocurrency volatility: Evidence from asymmetric modelling," Finance Research Letters, Elsevier, vol. 47(PA).
    19. Deev, Oleg & Plíhal, Tomáš, 2022. "How to calm down the markets? The effects of COVID-19 economic policy responses on financial market uncertainty," Research in International Business and Finance, Elsevier, vol. 60(C).
    20. Kunal Saha & Vinodh Madhavan & G. R. Chandrashekhar, 2022. "Effect of COVID-19 on ETF and index efficiency: evidence from an entropy-based analysis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 46(2), pages 347-359, April.
    21. Roy, Archi & Soni, Anchal & Deb, Soudeep, 2023. "A wavelet-based methodology to compare the impact of pandemic versus Russia–Ukraine conflict on crude oil sector and its interconnectedness with other energy and non-energy markets," Energy Economics, Elsevier, vol. 124(C).
    22. Yan, Huanmin & Liu, Zhenyu & Wang, Haoyu & Zhang, Xuehua & Zheng, Xilei, 2022. "How does the COVID-19 affect earnings management: Empirical evidence from China," Research in International Business and Finance, Elsevier, vol. 63(C).
    23. Wang, Xiaoyang, 2022. "Efficient markets are more connected: An entropy-based analysis of the energy, industrial metal and financial markets," Energy Economics, Elsevier, vol. 111(C).
    24. Ştefan Cristian Gherghina & Liliana Nicoleta Simionescu, 2023. "Exploring the asymmetric effect of COVID-19 pandemic news on the cryptocurrency market: evidence from nonlinear autoregressive distributed lag approach and frequency domain causality," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-58, December.

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    More about this item

    Keywords

    COVID-19; Entropy; Extreme events; Market efficiency;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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