TY - JOUR
T1 - The impact of the SARS-CoV-2 pandemic on financial markets: a seismologic approach
AU - Spelta, Alessandro
AU - Pecora, Nicolo'
AU - Flori, Andrea
AU - Giudici, Paolo
PY - 2021
Y1 - 2021
N2 - This work investigates financial volatility cascades generated by SARS-CoV-2 related news using concepts developed in the field of seismology. We analyze the impact of socio-economic and political announcements, as well as of financial stimulus disclosures, on the reference stock markets of the United States, United Kingdom, Spain, France, Germany and Italy. We quantify market efficiency in processing SARS-CoV-2 related news by means of the observed Omori power-law exponents and we relate these empirical regularities to investors’ behavior through the lens of a stylized Agent-Based financial market model. The analysis reveals that financial markets may underreact to the announcements by taking a finite time to re-adjust prices, thus moving against the efficient market hypothesis. We observe that this empirical regularity can be related to the speculative behavior of market participants, whose willingness to switch toward better performing investment strategies, as well as their degree of reactivity to price trend or mispricing, can induce long-lasting volatility cascades.
AB - This work investigates financial volatility cascades generated by SARS-CoV-2 related news using concepts developed in the field of seismology. We analyze the impact of socio-economic and political announcements, as well as of financial stimulus disclosures, on the reference stock markets of the United States, United Kingdom, Spain, France, Germany and Italy. We quantify market efficiency in processing SARS-CoV-2 related news by means of the observed Omori power-law exponents and we relate these empirical regularities to investors’ behavior through the lens of a stylized Agent-Based financial market model. The analysis reveals that financial markets may underreact to the announcements by taking a finite time to re-adjust prices, thus moving against the efficient market hypothesis. We observe that this empirical regularity can be related to the speculative behavior of market participants, whose willingness to switch toward better performing investment strategies, as well as their degree of reactivity to price trend or mispricing, can induce long-lasting volatility cascades.
KW - Agent-based modeling
KW - Financial markets
KW - Omori law
KW - SARS covid-2
KW - Agent-based modeling
KW - Financial markets
KW - Omori law
KW - SARS covid-2
UR - http://hdl.handle.net/10807/183596
U2 - 10.1007/s10479-021-04115-y
DO - 10.1007/s10479-021-04115-y
M3 - Article
SN - 0254-5330
SP - 1
EP - 26
JO - Annals of Operations Research
JF - Annals of Operations Research
ER -