Impact of COVID-19 on stock markets; evidence from global equity indices

Does increasing uncertainty and volatility deter investors to benefit from equity diversification on the international market? How did equity indices perform during the COVID-19 pandemic? Using updated daily data from 2010-2021 this study aims at understanding how equity markets have performed in the international financial markets during this period. Can investors diversify their portfolio by investing in more than one equity market? The study also tries to understand the performance of these equity indices during the COVID-19 pandemic, employed as a dummy variable. In this case the study looks at equity indices that performed better and those that have a quick speed of recovery. Vector Error Correction Models (VECM) was used in the study to establish relationship among the 12 equity indices. Results from the study indicates that there are signs of further cointegration in the international equity markets. Adding COVID-19 as a dummy variable to the equation, there are increased number of cointegrating vectors among 12 equity indices included in the study as proxies for global equity indices. Furthermore, the results shows that investors can benefit by investing in particular, equity indices that have exhibited quick speed of recovery from the pandemic record lows. The data for the study was collected from Thompson Reuters and investing.com.