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Efficiency of the financial markets during the COVID-19 crisis: time-varying parameters of fractional stable dynamics

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  • Ayoub Ammy-Driss
  • Matthieu Garcin

Abstract

This paper investigates the impact of COVID-19 on financial markets. It focuses on the evolution of the market efficiency, using two efficiency indicators: the Hurst exponent and the memory parameter of a fractional L\'evy-stable motion. The second approach combines, in the same model of dynamic, an alpha-stable distribution and a dependence structure between price returns. We provide a dynamic estimation method for the two efficiency indicators. This method introduces a free parameter, the discount factor, which we select so as to get the best alpha-stable density forecasts for observed price returns. The application to stock indices during the COVID-19 crisis shows a strong loss of efficiency for US indices. On the opposite, Asian and Australian indices seem less affected and the inefficiency of these markets during the COVID-19 crisis is even questionable.

Suggested Citation

  • Ayoub Ammy-Driss & Matthieu Garcin, 2020. "Efficiency of the financial markets during the COVID-19 crisis: time-varying parameters of fractional stable dynamics," Papers 2007.10727, arXiv.org, revised Nov 2021.
    • Handle: RePEc:arx:papers:2007.10727
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    Cited by:

    1. Samuel Tabot Enow, 2021. "The Impact of Covid-19 on Market Efficiency: A Comparative Market Analysis," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 9(4), pages 235-244.

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