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Market Reactions to U.S. Financial Indices: A Comparison of the GFC versus the COVID-19 Pandemic Crisis

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Listed:
  • Dante Iván Agatón Lombera

    (Graduate and Research Department, Universidad Nova Spania, Morelia 58000, Mexico)

  • Diego Andrés Cardoso López

    (Department of Economic, Administrative, and Accounting Sciences, Los Libertadores University Foundation, Bogotá 110221, Colombia)

  • Jesús Antonio López Cabrera

    (Economic Commission for Latin America and the Caribbean (ECLAC), Mexico City 11520, Mexico)

  • José Antonio Nuñez Mora

    (EGADE Business School, Tecnológico de Monterrey, Mexico City 01389, Mexico)

Abstract

This study delves into the impacts of the 2008 global financial crisis (GFC) and the COVID-19 health crisis on U.S. financial indices, exploring the intricate relationship between economic shocks and these indices during downturns. Using Markov switching regression models and control variables, including GDP, consumer sentiment, industrial production, and the ratio of inventories-to-sale, it quantifies the effects of these crises on the CBOE Volatility Index (VIX), Standard & Poor’s 500 (S&P 500), and the Dow Jones Industrial Average (DJIA) from Q1 2000 to Q2 2023, covering crucial moments of both crises and stable periods (dichotomous variables). Results reveal that the 2008 crisis significantly heightened financial volatility and depreciated the valuation of S&P 500 and DJIA indicators, while the COVID-19 crisis had a diverse impact on market dynamics, particularly negatively affecting specific sectors. This study underscores the importance of consumer confidence and inventory management in mitigating financial volatility and emphasises the need for robust policy measures to address economic shocks, enhance financial stability, and alleviate future crises, especially during endogenous crises such as financial downturns. This research sheds light on the nuanced impact of crises on financial markets and the broader economy, revealing the intricate dynamics shaping market behaviour during turbulent times.

Suggested Citation

  • Dante Iván Agatón Lombera & Diego Andrés Cardoso López & Jesús Antonio López Cabrera & José Antonio Nuñez Mora, 2024. "Market Reactions to U.S. Financial Indices: A Comparison of the GFC versus the COVID-19 Pandemic Crisis," Economies, MDPI, vol. 12(7), pages 1-24, June.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:7:p:165-:d:1423778
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    References listed on IDEAS

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    1. Yeager, Timothy J., 2011. "Causes, consequences and cures of the subprime financial crisis," Journal of Economics and Business, Elsevier, vol. 63(5), pages 345-348, September.
    2. Flavin, Thomas J. & Sheenan, Lisa, 2015. "The role of U.S. subprime mortgage-backed assets in propagating the crisis: Contagion or interdependence?," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 167-186.
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    4. Chan, Kam Fong & Chen, Zhuo & Wen, Yuanji & Xu, Tong, 2022. "COVID-19 vaccines and global stock markets," Finance Research Letters, Elsevier, vol. 47(PB).
    5. Chen, Hsuan-Chi & Yeh, Chia-Wei, 2021. "Global financial crisis and COVID-19: Industrial reactions," Finance Research Letters, Elsevier, vol. 42(C).
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