Article in International Journal of Entrepreneurship · December 2020 doi: 10. 4018/ijegcc. 2020070105 citations 11 reads 286 João Manuel Pereira Polytechnic Institute of Setúbal Instituto Politécnico de Lisboa 95

INTRODUCTION

TheCOVID-19outbreakhascausedglobalconcern.OnJanuary30,WHOdeclareditaglobalhealth emergencyofinternationalconcern.Theeasyspreadofthisvirushascauseduncertaintyintheglobal population.Thisepidemichasalsocausedchangesinpeople’slifestyles,joblosses,andthreatened thelivelihoodofmillionsofpeopleascompaniesclosedtocontrolthevirus’sspread.Globally,the rapidspreadofcoronavirus(COVID-19)hashaddevastatingimpactsontheglobaleconomy,and consequently,onfinancialmarketsworldwidetoo(Zhang,Hu,andJi,2020;Ali,Alam,andRizvi, 2020).

Financialinstabilityisaveryworryingfactorforsocietysinceafinancialcrisisorastockmarket crashcanaffect,directlyorindirectly,theleveloftheeconomicwell-beingoftheinhabitantsof acountry.Ifastockmarketisstronglylinkedtoanothercountry’sstockmarket,inthatcase,the financialstabilityoftheformerdependstosomeextentonthefinancialstabilityofthelatter.Thus, theintegrationbetweenmarketscanhavesignificantimplicationsfortheinternationaldiversification ofrisk(Dias,daSilva,andDionísio,2019;Dias,Heliodoro,Teixeira,andGodinho,2020).

DOI: 10.4018/IJEGCC.2020070105



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Hence,thisstudyaimstoanalyzetherelationshipbetweenCOVID-19(casesanddeaths)and stockmarketindexesinGreece(ATG),France(CAC40),Germany(DAX30),UnitedKingdom (FTSE100),Italy(FTSEMID),Spain(IBEX35),Ireland(ISEQ),andPortugal(PSI20),inthe periodfromDecember31,2019,toJuly23,2020.Inordertofulfillthepurposeofthisstudyand todetermineaplausiblecausallink,twokeyresearchquestionshavebeenraised:Doestheincrease inCOVID-19casesanddeathsshockEurope’sfinancialmarkets?.Ifso,doesthepresenceoflong memoriescausehighlevelsofarbitration?.TheresultsoftheVARGrangerCausality/Block ExogeneityWaldTestsmodelshowthattheCOVID-19dataseries(confirmedcasesanddeaths)do notshockthefinancialmarketsinEurope,whichdoesnotvalidatethefirstinvestigationquestion. TheresultsoftheexponentsDetrendedFluctuationAnalysis(DFA)showsignificantlongmemories, oscillatingbetween0.61-0.73,whichvalidatesthesecondinvestigationquestion:thepersistencein profitabilitymaycausemarkedlevelsofarbitrage.

Thisstudydiffersfromotherstudiescarriedoutsofarontheimpactoftheglobalpandemicon financialmarkets.Asfarasisknown,otherauthorssuchasAli,Alam,andRizvi(2020),Ashraf(2020), Liu,Manzoor,Wang,Zhang,Manzoor(2020),Zeren,andHizarci(2020),havealsoanalyzedthe shockscausedbythepandemic,buttheresearchquestions,theanalyzedmarkets,andtheirapproach wereessentiallydifferentfromthatfollowedinthisstudy.

Fromastructuralviewpoint,thisarticleisorganizedintofivesections.Inadditiontothecurrent introduction,section2presentsaLiteratureReviewconcerningarticlesontheimpactoftheglobal pandemiconinternationalfinancialmarkets.Section3describesthemethodologyanddata,and section4containstheresults.Lastly,section5presentsthegeneraldiscussionsoftheresearch.