COVID-19 Pandemic and Financial Contagion

Abstract

The original contribution of this paper is to empirically document the contagion of the Covid-19 on financial markets. We merge databases from Johns Hopkins Coronavirus Center, Oxford-Man Institute Realized Library, NYU Volatility Lab, and St-Louis Federal Reserve Board. We deploy three types of models throughout our experiments: (i) the Susceptible-Infective-Removed (SIR) that predicts the infections’ peak on 2020-03-27; (ii) volatility (GARCH), correlation (DCC), and risk-management (Value-at-Risk (VaR)) models that relate how bears painted Wall Street red; and, (iii) data-science trees algorithms with forward prunning, mosaic plots, and Pythagorean forests that crunch the data on confirmed, deaths, and recovered Covid-19 cases and then tie them to high-frequency data for 31 stock markets.