Lessons for Euro markets from the first wave of COVID-19

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Although the coronavirus pandemic hit Europe in the early days of 2020, European stock markets had signaled fluctuations in the days before. This paper assesses the observed volatility on European stock exchanges and searches for its sources during the first four months of 2020. To investigate the issue, a panel VAR model is adopted, and the generalized impulse response function and the variance decomposition methods are used. The estimations show that about 34% of the volatility in European stock markets is due to the Chinese stock market, while 7% is due to international uncertainty, as measured by VIX. The impact of pandemic cases and deaths on European stock markets is negligible, below 1%. This means that the European stock market faced two risk elements: the first is the transmission volatility from the Chinese stock market, and the second is the international uncertainty. The findings also support the view that COVID-19 is more like a systematic risk.

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    • Figure 1. COVID-19 cases per European countries
    • Figure 2. Stock returns per European countries
    • Figure 3.Generalized impulse response of European stock returns to COVID-19 cases and deaths, Chinese returns and VIX index
    • Figure 4. Sub-periods’ generalized impulse response of European stock returns to COVID-19 cases and deaths, Chinese returns and VIX index
    • Figure 5. Generalized impulse response of European stock returns to COVID-19 cases and deaths, Chinese returns and VIX index per group
    • Table 1. Contribution of Chinese returns, COVID-19 deaths and cases, and VIX to the forecast error variance of European stock returns
    • Table 2. Countries of each Group
    • Table 3. Contribution of Chinese returns, COVID-19 deaths and cases, and VIX to the forecast error variance of European stock returns per group
    • Table A1. Country and indices sample
    • Table A2. Confirmed COVID-19 cases, deaths and market volatility
    • Table A3. Panel data unit root test
    • Conceptualization
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Formal Analysis
      Costas Siriopoulos, Argyro Svingou
    • Funding acquisition
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Investigation
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Methodology
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Project administration
      Costas Siriopoulos
    • Resources
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Software
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Supervision
      Costas Siriopoulos
    • Validation
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Visualization
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Writing – original draft
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Writing – review & editing
      Costas Siriopoulos, Argyro Svingou, Jagadish Dandu
    • Data curation
      Argyro Svingou