NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19

C. R. Narayanaswamy; Vignesh Narayanaswamy

doi:10.17261/Pressacademia.2025.1980

NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19

Abstract

Purpose-During the COVID-19 crisis, correlations between U.S. equity returns and those of its three primary trading partners—Canada, China, and Mexico—rose sharply. In particular, the average correlation climbed from 0.56 in 2019 to 0.83 in 2020, the peak year. This study investigates whether this nearly 48% surge signals a contagion effect stemming from COVID-19. Methodology-Price data of ADRs for Canada, China, and Mexico, traded on the New York Stock Exchange were collected and returns on equally weighted portfolios for each country were computed. Using the returns on the country portfolios of ADRs and the US equity stock index S&P 500, cross-country correlations between the U.S. and each of its major trading partner countries were computed. These estimates were revised by applying the volatility adjustment procedure recommended by Forbes and Rigobon (2002). The revised estimates of correlations were tested whether they differed from the stable period values. Findings-During the pandemic, unadjusted Correlations between U.S. equities and each of its major trading partners increased. These estimates were then adjusted for the increased volatility. The revised correlations were not found to be significantly different from their pre-pandemic values. Conclusion-Estimates of correlations between U.S. equity and its major trading partner countries increased dramatically during the pandemic, implying possible contagion. This conclusion would be premature and incorrect as volatility changes are ignored in the estimation process. When corrected for it, the revised estimates of correlations do not support the presence of contagion effect.

Keywords

References

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Details

Primary Language

English

Subjects

Finance, Finance and Investment (Other), Business Administration

Journal Section

Research Article

Authors

C. R. Narayanaswamy ^* This is me
0000-0003-2877-0333
United States

Vignesh Narayanaswamy This is me
0000-0002-1776-6710
United States

Publication Date

July 30, 2025

Submission Date

March 1, 2025

Acceptance Date

May 22, 2025

Published in Issue

Year 2025 Volume: 14 Number: 1

DOI

https://doi.org/10.17261/Pressacademia.2025.1980

IZ

https://izlik.org/JA89NC67SU

Cite

RIS / Bibtex

APA

Narayanaswamy, C. R., & Narayanaswamy, V. (2025). NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19. Journal of Business Economics and Finance, 14(1), 98-104. https://doi.org/10.17261/Pressacademia.2025.1980

AMA

1.Narayanaswamy CR, Narayanaswamy V. NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19. JBEF. 2025;14(1):98-104. doi:10.17261/Pressacademia.2025.1980

Chicago

Narayanaswamy, C. R., and Vignesh Narayanaswamy. 2025. “NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19”. Journal of Business Economics and Finance 14 (1): 98-104. https://doi.org/10.17261/Pressacademia.2025.1980.

EndNote

Narayanaswamy CR, Narayanaswamy V (July 1, 2025) NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19. Journal of Business Economics and Finance 14 1 98–104.

IEEE

[1]C. R. Narayanaswamy and V. Narayanaswamy, “NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19”, JBEF, vol. 14, no. 1, pp. 98–104, July 2025, doi: 10.17261/Pressacademia.2025.1980.

ISNAD

Narayanaswamy, C. R. - Narayanaswamy, Vignesh. “NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19”. Journal of Business Economics and Finance 14/1 (July 1, 2025): 98-104. https://doi.org/10.17261/Pressacademia.2025.1980.

JAMA

1.Narayanaswamy CR, Narayanaswamy V. NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19. JBEF. 2025;14:98–104.

MLA

Narayanaswamy, C. R., and Vignesh Narayanaswamy. “NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19”. Journal of Business Economics and Finance, vol. 14, no. 1, July 2025, pp. 98-104, doi:10.17261/Pressacademia.2025.1980.

Vancouver

1.C. R. Narayanaswamy, Vignesh Narayanaswamy. NO CONTAGION, ONLY VOLATILITY: U.S. EQUITY CORRELATIONS DURING COVID-19. JBEF. 2025 Jul. 1;14(1):98-104. doi:10.17261/Pressacademia.2025.1980