Impact of the COVID-19 pandemic on the financial market efficiency of price returns, absolute returns, and volatility increment: Evidence from stock and cryptocurrency markets

ArXiv ID: 2504.18960 “View on arXiv”

Authors: Tetsuya Takaishi

Abstract

This study examines the impact of the coronavirus disease 2019 (COVID-19) pandemic on market efficiency by analyzing three time series – price returns, absolute returns, and volatility increments – in stock (Deutscher Aktienindex, Nikkei 225, Shanghai Stock Exchange (SSE), and Volatility Index) and cryptocurrency (Bitcoin and Ethereum) markets. The effect is found to vary by asset class and market. In the stock market, while the pandemic did not influence the Hurst exponent of volatility increments, it affected that of returns and absolute returns (except in the SSE, where returns remained unaffected). In the cryptocurrency market, the pandemic did not alter the Hurst exponent for any time series but influenced the strength of multifractality in returns and absolute returns. Some Hurst exponent time series exhibited a gradual decline over time, complicating the assessment of pandemic-related effects. Consequently, segmented analyses by pandemic periods may erroneously suggest an impact, warranting caution in period-based studies.

Keywords: Hurst exponent, multifractality, time series analysis, market efficiency, COVID-19 impact, Equities and Cryptocurrency

Complexity vs Empirical Score

  • Math Complexity: 7.0/10
  • Empirical Rigor: 5.0/10
  • Quadrant: Lab Rats
  • Why: The paper employs advanced time-series analysis techniques like multifractal detrended fluctuation analysis (MFDFA) and generalized Hurst exponent calculations, which are mathematically dense, but it relies on standard daily price data without providing specific backtesting frameworks, model implementations, or code for replication.
  flowchart TD
    A["Research Goal:<br>Assess COVID-19 impact on<br>market efficiency (Fractality)"] --> B["Data Acquisition &<br>Preprocessing"]
    
    B --> C["Computational Analysis:<br>Hurst Exponent & Multifractality<br>Estimation"]
    
    C --> D{"Outcome Analysis"}
    
    D --> E["Stock Markets<br>DAX, Nikkei 225, SSE, VIX"]
    D --> F["Cryptocurrency Markets<br>Bitcoin, Ethereum"]
    
    E --> G["Key Findings<br>Stocks: Pandemic impacted returns/<br>absolute returns; SSE unaffected<br>Volatility: No impact on Hurst exponent"]
    
    F --> H["Key Findings<br>Crypto: No change in Hurst exponent<br>but altered multifractality strength<br>in returns/absolute returns"]
    
    G --> I["Overall Conclusion<br>Asset-class dependent impact<br>Warning: Long-term trends may<br>confound period-based analysis"]
    H --> I