Analyzing the Dynamic Effects Covid-19 Crisis on Stock Markets and Global Supply Chains-PSY-VAR Approaches

Abstract

This study evaluates the dynamic effects covid-19 crisis on 5 selected stock market indices and global supply chains for the period Jan 2, 2019 to April 23, 2021. The study employs a combination of the Phillips, Shi and Yu (PSY) bubble identification and date stamping strategy and vector auto-regression (VAR) models. We find that volatility in the stock markets increased during the covid19 crisis period. However, developing stock markets experienced more volatility than developed stock markets. Impulse response analyses indicate that, in the pre-crisis period, a positive shock to S&P500 has no effect on Nikkei and Shanghai indices but has a significant positive effect on Stoxx50 index, and a negative effect on KOSPI index. In terms of covid19 shocks, S&P500 index responds positively to the positive shock to new cases in the United States (USA).