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Contagion of COVID-19 pandemic between oil and financial assets: the evidence of multivariate Markov switching GARCH models

Achraf Ghorbel (University of Sfax, Sfax, Tunisia)
Ahmed Jeribi (University of Monastir, Mahdia, Tunisia)

Journal of Investment Compliance

ISSN: 1528-5812

Article publication date: 20 May 2021

Issue publication date: 17 July 2021




In this paper, we investigate empirically the time-frequency co-movement between the recent COVID-19 pandemic, G7stock markets, gold, crude oil price (WTI) and cryptocurrency markets (bitcoin) using both the multivariate MSGARCH models.


This paper examines the relationship between the volatilities of oil, Chinese stock index and financial assets (cryptocurrency, gold, and G7 stock indexes), for the period January 17th 2020 to December 10th 2020. It tests the presence of regime changes in the GARCH volatility dynamics of bitcoin, gold, Chinese, and G7 stock indexes as well as oil prices by using Markov–Switching GARCH model. Also, the paper estimates the dynamic correlation and volatility spillover between oil, Chinese and financial assets by using the MSBEKK-GARCH and MSDCC-GARCH models.


Overall, we find that all variables display a strong volatility concentrated in the first four months of Covid-19 outbreak. The paper conducts different backtesting procedures of the 1% and 5% Value-at-Risk forecasts of risk. The results find that gold has the lowest VaR. However, the Canadian and American indices have the highest VaR, for respectively 1% and 5% confidence level. The estimation results of MSBEKK-GARCH prove the volatility spillover between Chinese index, oil and financial assets. Although, the past news about shocks in the Chinese index significantly affects the current conditional volatility of financial assets. Moreover, for the high regime, the correlation increased between Chinese and G7 stock indexes which proving the contagion effect of the COVID-19 pandemic. On the contrary, the correlation decreased between Chinese-gold and Chinese-bitcoin, which confirming that gold and bitcoin can be considered as an alternative hedge for some investors during a crisis. During the COVID-19 pandemic, the correlations for the couples oil-gold and oil-bitcoin peaked. Contrary to gold, bitcoin cannot be considered as a safe haven during the global pandemic when investing in crude oil.


In contrast, comparative analysis in terms of responses to US COVID-19 pandemic, the US Covid-19 confirmed cases have relative higher impact on the co-movement in WTI and bitcoin. This paper confirms that gold is a safe haven during the COVID19 pandemic period.



The authors would like to thank the editor for his careful reading and comments. The authors declare no conflict of interest.


Ghorbel, A. and Jeribi, A. (2021), "Contagion of COVID-19 pandemic between oil and financial assets: the evidence of multivariate Markov switching GARCH models", Journal of Investment Compliance, Vol. 22 No. 2, pp. 151-169.



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