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NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19

Yıl 2025, Cilt: 14 Sayı: 1, 98 - 104, 30.07.2025

C. R. Narayanaswamy Vignesh Narayanaswamy

Öz

Purpose-During the COVID-19 crisis, correlations between U.S. equity returns and those of its three primary trading partners—Canada, China, and Mexico—rose sharply. In particular, the average correlation climbed from 0.56 in 2019 to 0.83 in 2020, the peak year. This study investigates whether this nearly 48% surge signals a contagion effect stemming from COVID-19.
Methodology-Price data of ADRs for Canada, China, and Mexico, traded on the New York Stock Exchange were collected and returns on equally weighted portfolios for each country were computed. Using the returns on the country portfolios of ADRs and the US equity stock index S&P 500, cross-country correlations between the U.S. and each of its major trading partner countries were computed. These estimates were revised by applying the volatility adjustment procedure recommended by Forbes and Rigobon (2002). The revised estimates of correlations were tested whether they differed from the stable period values.
Findings-During the pandemic, unadjusted Correlations between U.S. equities and each of its major trading partners increased. These estimates were then adjusted for the increased volatility. The revised correlations were not found to be significantly different from their pre-pandemic values.
Conclusion-Estimates of correlations between U.S. equity and its major trading partner countries increased dramatically during the pandemic, implying possible contagion. This conclusion would be premature and incorrect as volatility changes are ignored in the estimation process. When corrected for it, the revised estimates of correlations do not support the presence of contagion effect.

Anahtar Kelimeler

COVID-19 pandemic correlations contagion ADR

Kaynakça

  • Chang, C. P., Feng, G. F., & Zheng, M. (2021). Government is fighting pandemic, stock market returns, and COVID-19 virus outbreak. Emerging Markets Finance and Trade, 57(8), 2389–2406. https://doi.org/10.1080/1540496X.2021.1873129
  • Cepoi, C. (2020). Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil. Finance Research Letters, 36, 101658–101658. https://doi:10.1016/j.frl.2020.101658
  • Chien, F., Sadiq, M., Waqas, H., Nawaz, M. A., Hussain, M. S., & Raza, M. (2021). Co-movement of energy prices and sock market return: environmental wavelet nexus of COVID-19 pandemic from the USA, Europe, and China. Environmental Science and Pollution Research, 28(25), 32359-73. https://doi.10.1007/s11356-021-12938-2
  • Dancho, M., & Vaughan, D. (2021). tidyquant: Tidy Quantitative Financial Analysis. R package, version 1.0.
  • https://CRAN.Rproject.org/package=tidyquant
  • Ding,W., Levine, R., Lin, C., & Xi, W. (2021). Corporate immunity to the Covid-19 pandemic. Journal of Financial Economics, 141 (2), 802-830.
  • https://doi.org/10.1016/j.jfineco.2021.03.005
  • Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: measuring stock market comovements. Journal of Finance, 57(5), 2223-2261. https://doi.org/10.1111/0022-1082.00494
  • Ftiti, Z., Ameur, H. B., & Louhichi, W. (2021). Does non-fundamental news related to Covid-19 matter for stock returns? Evidence from Shanghai stock market. Economic Modelling, 99(C). https://dOI: 10.1016/j.econmod.2021.03.003
  • Healey, J., & Wong, A. (2022). After 2 Years of Pandemic Life, Turn Toward Normalcy Is a Shake Up. New York Times.
  • https://www.nytimes.com/2022/03/12/us/covid-pandemic-vaccines-mandates.html
  • Hong, H., Bian, Z., & Lee, C. (2021). COVID-19 and instability of stock market performance: evidence from the US. Financial Innovation 7, 1-18. https://doi.org/10.1186/s40854-021-00229-1
  • Huang, T., Kumar, A., Sacchetto, S., & Vergara-Alert, C. (2024). Stock comovement and financial flexibility. Journal of Financial and Quantitative Analysis, 59(3), 1141–1184. https://doi.org/10.1017/s0022109022001338
  • Huang, W., Wang, H., Wei, Y., & Chevallier, J. (2024). Complex network analysis of global stock market co-movement during the COVID-19 pandemic based on intraday open-high-low-close data. Financial Innovation, 10(7), 1-50. https://doi.org/10.1186/s40854-023-00548-5
  • Kabir, M., Hassan, M. K., & Maroney, N. (2011). International diversification with American Depository Receipts (ADRs), Pacific-Basin Finance Journal, Elsevier, 19(1), 98-114. https://doi.org/10.1016/j.pacfin.2010.09.003.
  • Kusumahadi, T. A., & Permana. F. C. (2021). Impact of COVID-19 on global stock market volatility. Journal of Economic Integration 36(1), 20-45. https://doi.org/10.11130/jei.2021.36.1.20
  • Lee, C., Lee, C., & Wu, Y. (2023). The impact of Covid-19 epidemic on hospitality stock returns in China. International Journal of Finance & Economics, 28(2), 1787-1800.
  • Li, Haoyu. (2025). Does the COVID-19 outbreak affect dynamic co-movement among the stock markets of China, Japan, and the USA? International Journal of Financial Engineering, 12(01).
  • Li, W., Chien, F., Kamran, H., Aldeehani, T.M., Sadiq, M., Nguyen, V.C., & Taghizadeh-Hesary, F. (2022). The nexus between COVID-19 fear and stock market volatility. Economic Research, 35(1), 1765-1785.
  • Liu, L., Wang, E., & Lee, C. (2020). Impact of the Covid-19 pandemic on the crude oil and stock market in the US: A time varying analysis. Energy Research Letters, 1(1). 21-35. https://doi.org/10.46557/001c.13154
  • Mazur, M., Dang, Man., & Vega, M. (2021). COVID-19 and the March 2020 stock market crash. Evidence from S&P1500. Finance Research Letters 38 (1), 11-31. https://doi.org/10.1016/j.frl.2020.101690.
  • Pham, A., Adrian, C., Garg, M., Phang, S., & Troung, C. (2021). State-level Covid-19 outbreak and stock returns. Finance Research Letters, 43(3), 176-189. https://doi.org/10.1016/j.frl.2021.102002
  • Securities and Exchange Commission. (2012). Investor Bulletin: American Depositary Receipts. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-88
  • Shih, W. C. (2020). Global supply chains in a post-pandemic world. Harvard Business Review, 98(5), 82-89.
  • Solnik, B., & McLeavey, D. (2009). Global Investments. Pearson Education, Inc.
  • Taylor, D. B. (2021). A Timeline of the Coronavirus Pandemic. New York Times, https://www.nytimes.com/article/coronavirus-timeline.html
  • U.S. Census Department. (2021). Top Trading Partners, 2922 (February). https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html
  • Wahab, M., & Lashgari, M. (1993). Stability and predictability of the comovement structure of returns in the American Depository Receipts market, Global Finance Journal, 4(2), 141-169. https://doi.org/10.1016/1044-0283(93)90004-I
  • Wang, A. T., & Yang, S. Y. (2004). Foreign exchange risk, world diversification and Taiwanese ADRs. Applied Economics Letters, 11(12), 755–758. https://doi.org/10.1080/1350485042000254629
  • World Health Organization. (2022). Timeline: WHO's COVID-19 response. https://www.who.int/emergencies/diseases/novel-coronavirus-2019/interactive-timeline#!
  • Xu, Libo. (2021). Stock Returns and the Covid-19 pandemic: Evidence from Canada and the U.S., Finance Research Letters, 38(1). 21-33. https://doi.org/10.1016/j.frl.2020.101872

Yıl 2025, Cilt: 14 Sayı: 1, 98 - 104, 30.07.2025

C. R. Narayanaswamy Vignesh Narayanaswamy

Öz

Kaynakça

  • Chang, C. P., Feng, G. F., & Zheng, M. (2021). Government is fighting pandemic, stock market returns, and COVID-19 virus outbreak. Emerging Markets Finance and Trade, 57(8), 2389–2406. https://doi.org/10.1080/1540496X.2021.1873129
  • Cepoi, C. (2020). Asymmetric dependence between stock market returns and news during COVID-19 financial turmoil. Finance Research Letters, 36, 101658–101658. https://doi:10.1016/j.frl.2020.101658
  • Chien, F., Sadiq, M., Waqas, H., Nawaz, M. A., Hussain, M. S., & Raza, M. (2021). Co-movement of energy prices and sock market return: environmental wavelet nexus of COVID-19 pandemic from the USA, Europe, and China. Environmental Science and Pollution Research, 28(25), 32359-73. https://doi.10.1007/s11356-021-12938-2
  • Dancho, M., & Vaughan, D. (2021). tidyquant: Tidy Quantitative Financial Analysis. R package, version 1.0.
  • https://CRAN.Rproject.org/package=tidyquant
  • Ding,W., Levine, R., Lin, C., & Xi, W. (2021). Corporate immunity to the Covid-19 pandemic. Journal of Financial Economics, 141 (2), 802-830.
  • https://doi.org/10.1016/j.jfineco.2021.03.005
  • Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: measuring stock market comovements. Journal of Finance, 57(5), 2223-2261. https://doi.org/10.1111/0022-1082.00494
  • Ftiti, Z., Ameur, H. B., & Louhichi, W. (2021). Does non-fundamental news related to Covid-19 matter for stock returns? Evidence from Shanghai stock market. Economic Modelling, 99(C). https://dOI: 10.1016/j.econmod.2021.03.003
  • Healey, J., & Wong, A. (2022). After 2 Years of Pandemic Life, Turn Toward Normalcy Is a Shake Up. New York Times.
  • https://www.nytimes.com/2022/03/12/us/covid-pandemic-vaccines-mandates.html
  • Hong, H., Bian, Z., & Lee, C. (2021). COVID-19 and instability of stock market performance: evidence from the US. Financial Innovation 7, 1-18. https://doi.org/10.1186/s40854-021-00229-1
  • Huang, T., Kumar, A., Sacchetto, S., & Vergara-Alert, C. (2024). Stock comovement and financial flexibility. Journal of Financial and Quantitative Analysis, 59(3), 1141–1184. https://doi.org/10.1017/s0022109022001338
  • Huang, W., Wang, H., Wei, Y., & Chevallier, J. (2024). Complex network analysis of global stock market co-movement during the COVID-19 pandemic based on intraday open-high-low-close data. Financial Innovation, 10(7), 1-50. https://doi.org/10.1186/s40854-023-00548-5
  • Kabir, M., Hassan, M. K., & Maroney, N. (2011). International diversification with American Depository Receipts (ADRs), Pacific-Basin Finance Journal, Elsevier, 19(1), 98-114. https://doi.org/10.1016/j.pacfin.2010.09.003.
  • Kusumahadi, T. A., & Permana. F. C. (2021). Impact of COVID-19 on global stock market volatility. Journal of Economic Integration 36(1), 20-45. https://doi.org/10.11130/jei.2021.36.1.20
  • Lee, C., Lee, C., & Wu, Y. (2023). The impact of Covid-19 epidemic on hospitality stock returns in China. International Journal of Finance & Economics, 28(2), 1787-1800.
  • Li, Haoyu. (2025). Does the COVID-19 outbreak affect dynamic co-movement among the stock markets of China, Japan, and the USA? International Journal of Financial Engineering, 12(01).
  • Li, W., Chien, F., Kamran, H., Aldeehani, T.M., Sadiq, M., Nguyen, V.C., & Taghizadeh-Hesary, F. (2022). The nexus between COVID-19 fear and stock market volatility. Economic Research, 35(1), 1765-1785.
  • Liu, L., Wang, E., & Lee, C. (2020). Impact of the Covid-19 pandemic on the crude oil and stock market in the US: A time varying analysis. Energy Research Letters, 1(1). 21-35. https://doi.org/10.46557/001c.13154
  • Mazur, M., Dang, Man., & Vega, M. (2021). COVID-19 and the March 2020 stock market crash. Evidence from S&P1500. Finance Research Letters 38 (1), 11-31. https://doi.org/10.1016/j.frl.2020.101690.
  • Pham, A., Adrian, C., Garg, M., Phang, S., & Troung, C. (2021). State-level Covid-19 outbreak and stock returns. Finance Research Letters, 43(3), 176-189. https://doi.org/10.1016/j.frl.2021.102002
  • Securities and Exchange Commission. (2012). Investor Bulletin: American Depositary Receipts. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-88
  • Shih, W. C. (2020). Global supply chains in a post-pandemic world. Harvard Business Review, 98(5), 82-89.
  • Solnik, B., & McLeavey, D. (2009). Global Investments. Pearson Education, Inc.
  • Taylor, D. B. (2021). A Timeline of the Coronavirus Pandemic. New York Times, https://www.nytimes.com/article/coronavirus-timeline.html
  • U.S. Census Department. (2021). Top Trading Partners, 2922 (February). https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html
  • Wahab, M., & Lashgari, M. (1993). Stability and predictability of the comovement structure of returns in the American Depository Receipts market, Global Finance Journal, 4(2), 141-169. https://doi.org/10.1016/1044-0283(93)90004-I
  • Wang, A. T., & Yang, S. Y. (2004). Foreign exchange risk, world diversification and Taiwanese ADRs. Applied Economics Letters, 11(12), 755–758. https://doi.org/10.1080/1350485042000254629
  • World Health Organization. (2022). Timeline: WHO's COVID-19 response. https://www.who.int/emergencies/diseases/novel-coronavirus-2019/interactive-timeline#!
  • Xu, Libo. (2021). Stock Returns and the Covid-19 pandemic: Evidence from Canada and the U.S., Finance Research Letters, 38(1). 21-33. https://doi.org/10.1016/j.frl.2020.101872
Toplam 31 adet kaynakça vardır.

Ayrıntılar

Birincil Dil İngilizce
Konular Finans, Finans ve Yatırım (Diğer), İşletme
Bölüm Articles
Yazarlar

C. R. Narayanaswamy 0000-0003-2877-0333

Vignesh Narayanaswamy 0000-0002-1776-6710

Yayımlanma Tarihi 30 Temmuz 2025
Gönderilme Tarihi 1 Mart 2025
Kabul Tarihi 22 Mayıs 2025
Yayımlandığı Sayı Yıl 2025 Cilt: 14 Sayı: 1

Kaynak Göster

APA Narayanaswamy, C. R., & Narayanaswamy, V. (2025). NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19. Journal of Business Economics and Finance, 14(1), 98-104. https://doi.org/10.17261/Pressacademia.2025.1980

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