Dynamic Conditional Correlations among Global Financial Assets before and after the Covid-19 outburst

Abstract

This study investigates the dynamic nexus among the main economic sectors, safe haven assets, and modern forms of investment before and during normal and stressed eras. The DCC-GARCH methodology is employed covering the pre-Covid period (4 January 2017 to 21 January 2022) and the Covid-19 period (22 January 2020 to 28 March 2023). Econometric outcomes reveal high levels of connectedness among stock sub-indices and this is more pronounced between Banks, Financials, Industrials, and Basic Materials which are stronger during the pandemic compared to normal conditions. Consumer Goods, Consumer Services, and Technology also display remarkable linkages with the remaining sectors. Gold and Bitcoin are found to be efficient diversifiers and weak hedgers in stock portfolios but with low statistical significance. Overall, bear markets are found to generate more intense herding phenomena than bull markets. This paper sheds light on the relations among traditional and modern forms of investments and help investors improve the risk-return trade-off in their portfolios.