Market uncertainty and the European stock market : analysis of covid-19 pandemic impact on the European stock market

• Autor(a) principal: Mendonça, Gonçalo Miguel Pacheco Fonseca Lopes de
• Data de Publicação: 2023
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/42411
• topic: Covid-19; European financial market; Economic instability; Mercado financeiro europeu; Instabilidade económica; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

This dissertation explores the impact of the Covid-19 pandemic on the Euro STOXX 50 index, a key benchmark for the eurozone financial market. The study utilizes daily infections and fatalities related to Covid-19 to investigate its influence on the index’s volatility and returns. Using data from Yahoo Finance for the Euro STOXX 50 index and the World Health Organization for the daily infections and Covid-19 related fatalities, the study focuses on the period between January 2nd, 2020 and December 31st, 2020. This study employs the GARCH (1,1) model with a skewed student distribution to analyse the impact of the pandemic on the Euro STOXX 50 index. This model uses 257 observations from the daily log returns from 2020. allows for the variance of the error term to be time-dependent, making it suitable for analysing data with heteroscedasticity. The study finds that the pandemic's arrival in Europe led to a significant decline in prices from late February to early March. However, prices stabilized from June, only to be significantly affected again in November. These findings suggest that reacted heavily to both lockdowns due to decreases in economic activity, suggesting that even though the increase in cases and deaths did have a significant impact the index volatility, it was the decrease in economic activity and the speculation regarding the consequences from the in how economy would react to the policies taken that actually had a heavy impact on the financial market.