Have Stock Markets across the Globe Been Kidnapped by the Covid-19 Pandemic?

Abstract

Based on data of 6 major developed stock markets, this paper provides empirical evidences about how stock markets across the globe behave during the Covid-19 global pandemic. Evidences show that the movements of most stock market indices were individually dependent on the development of the Covid-19 pandemic in the corresponding countries during the pre-bottom period. However, this phenomenon largely faded away after stock markets bottomed out and entered into the recovery stage. Vector error correction model (VECM) confirms the cross-markets equilibrium during the Covid-19 pandemic and the majority of stock markets are expected to restore to new equilibriums relatively quickly if exogenous shocks are introduced in the future.