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Critical Letters in Economics & Finance

Abstract

Global financial markets have entered a state of collective hysteria triggered by the Coronavirus (Covid-19) detected in Wuhan, China in December 2019 suggesting that Covid-19 is a financial market “black swan” event. The impact of Covid-19 on the world’s leading stock markets is examined with the help of spectral causality and the well-known Granger causality model. The core research findings indicate that markets did not react to volatility levels exhibited by the Shanghai stock market, with China being identified as the epicentre of the virus outbreak. Markets awoke to the virus global threat when Italy registered its first cases, with the Italian stock market being the one that activated European fears. Global uncertainty escalated to reach a global financial dimension with global markets entering in free fall by the end of February 2020 due to the lack of active and coordinated responses from politicians and monetary authorities.

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Creative Commons Attribution-Noncommercial 4.0 License
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