The COVID-19 Pandemic and the Degree of Persistence of US Stock Prices and Bond Yields

18 Pages Posted: 5 Apr 2021

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London

Luis A. Gil-Alana

University of Navarra - Department of Economics

Carlos Poza

Universidad Francisco de Vitoria

Date Written: 2021

Abstract

This paper analyses the possible effects of the Covid-19 pandemic on the degree of persistence of US monthly stock prices and bond yields using fractional integration techniques. The model is estimated first over the period January 1966-December 2020 and then a recursive approach is taken to examine whether or not persistence has changed during the following pandemic period. We find that the unit root hypothesis cannot be rejected for stock prices while for bond yields the results differ depending on the maturity date and the specification of the error term. In general, bond yields appear to be more persistent, although there is evidence of mean reversion in case of 1-year yields under the assumption of autocorrelated errors. The recursive analysis shows no impact of the Covid-19 pandemic on the persistence of stock prices, whilst there is an increase in the case of both 10- and 1- year bond yields but not of their spread.

JEL Classification: C220, G100

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and Poza, Carlos, The COVID-19 Pandemic and the Degree of Persistence of US Stock Prices and Bond Yields (2021). CESifo Working Paper No. 8976, Available at SSRN: https://ssrn.com/abstract=3819097

Guglielmo Maria Caporale (Contact Author)

Brunel University London ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Carlos Poza

Universidad Francisco de Vitoria ( email )

Madrid
Spain

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