COVID-19 pandemic and connectedness across financial markets

Muhammad Abubakr Naeem, Saba Sehrish, Mabel D. Costa

Research output: Contribution to journalArticlepeer-review

34 Citations (Scopus)


Purpose: This study aims to estimate the time–frequency connectedness among global financial markets. It draws a comparison between the full sample and the sample during the COVID-19 pandemic. Design/methodology/approach: The study uses the connectedness framework of Diebold and Yilmaz (2012) and Barunik and Krehlik (2018), both of which consider time and frequency connectedness and show that spillover is specific to not only the time domain but also the frequency (short- and long-run) domain. The analysis also includes pairwise connectedness by making use of network analysis. Daily data on the MSCI World Index, Barclays Bloomberg Global Treasury Index, Oil future, Gold future, Dow Jones World Islamic Index and Bitcoin have been used over the period from May 01, 2013 to July 31, 2020. Findings: This study finds that cryptocurrency, bond and gold are hedges against both conventional stocks and Islamic stocks on average; however, these are not “safe havens” during an economic crisis, i.e. COVID-19. External shocks, such as COVID-19, strengthen the return connectedness among all six financial markets. Research limitations/implications: For investors, the study provides important insights that during external shocks such as COVID-19, there is a spillover effect, and investors are unable to hedge risk between conventional stocks and Islamic stocks. These so-called safe haven investment alternatives suffer from the similar negative impact of systemic financial risk. However, during an external shock such as COVID-19, cryptocurrencies, bonds and gold can be used to hedge risk against conventional stocks, Islamic stocks and oil. Moreover, the findings imply that by engaging in momentum trading, active investors can gain short-run benefits before the market processes any new information. Originality/value: The study contributes to the emergent literature investigating the connectedness among financial markets during the COVID-19 pandemic. It provides evidence that the return connectedness among six global financial markets, namely, conventional stocks, Islamic stocks, bond, oil, gold and cryptocurrency, is extremely strong. From a methodological standpoint, this study finds that COVID-19 pandemic shock has a significant short-run impact on the connectedness among financial markets.

Original languageEnglish
Pages (from-to)165-178
Number of pages14
JournalPacific Accounting Review
Issue number2
Early online date22 Feb 2021
Publication statusPublished - 10 Aug 2021


  • COVID-19
  • Global financial markets
  • Safe haven
  • Time–frequency connectedness

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