THE GLOBAL PANDEMIC (COVID-19) HAS CAUSED LONG MEMORIES IN EUROPE’S BANKING SECTOR
Rui Dias - School of Business Administration at Polytechnic Institute of Setúbal, Portugal and CEFAGE-UE, IIFA, University
of Évora, Portugal
João M. Pereira - University of Aberta, Portugal
Luísa Cagica Carvalho - Polytechnic Institute of Setubal, Portugal & CEFAGE, University of Évora, Portugal
DOI: https://doi.org/10.31410/Balkans.JETSS.2021.4.2.77-90
Rui Dias - School of Business Administration at Polytechnic Institute of Setúbal, Portugal and CEFAGE-UE, IIFA, University
of Évora, Portugal
João M. Pereira - University of Aberta, Portugal
Luísa Cagica Carvalho - Polytechnic Institute of Setubal, Portugal & CEFAGE, University of Évora, Portugal
DOI: https://doi.org/10.31410/Balkans.JETSS.2021.4.2.77-90
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Balkans Journal of Emerging Trends in Social Sciences, (2021) , Vol 4, No 2
ISSN: 2620-164X |
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Abstract: This study aims to analyze the impact of the 2020 global pandemic on the banking sectors of the countries of France, Germany, Greece, Ireland, Italy, Portugal, and Spain for the period from January 1, 2018, to August 10, 2020, with the sample being split into two subperiods: first subperiod from January 2018 to August 2019 (Pre-Covid); and the second from September 2019 to August 2020 (Covid-19). Different approaches were undertaken to perform this analysis, in order to verify whether: (i) the global pandemic (Covid-19) accentuated the persistence, in the returns, of the European banking sectors? (ii) the presence of long memories increases the synchronizations between markets? The main findings show that the assumption of the market efficiency hypothesis may be challenged, due to the possible predictability of the banking sectors’ actions, and that the analyzed sectors also show marked levels of integration, thus questioning the hypothesis of efficient portfolio diversification. The results seem to be of interest to investors looking for opportunities in these specific sectors and for policymakers to carry out institutional reforms to increase efficiency and promote sustainable growth of financial markets.
Keywords: Covid-19, Banking sectors, Arbitrage, Portfolio diversification.
JEL Classification C58 · G15
Keywords: Covid-19, Banking sectors, Arbitrage, Portfolio diversification.
JEL Classification C58 · G15
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Finance, 74, 24–37. https://doi.org/10.1016/j.jbankfin.2016.10.004
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and Its Applications, 490, 1355–1367. https://doi.org/10.1016/j.physa.2017.08.095
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González, L. O., Razia, A., Búa, M. V., & Sestayo, R. L. (2019). Market structure, performance, and
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Jarque, C. M., & Bera, A. K. (1980). Efficient tests for normality, homoscedasticity and serial
independence of regression residuals. Economics Letters, 6(3), 255–259. https://doi.
org/10.1016/0165-1765(80)90024-5
Karasiński, J. (2020). The Changing Efficiency of the European Stock Markets. Annales Universitatis
Mariae Curie-Skłodowska, Sectio H – Oeconomia. https://doi.org/10.17951/h.2020.54.1.41-51
Kok, S. C., & Munir, Q. (2015). Malaysian finance sector weak-form efficiency: Heterogeneity,
structural breaks, and cross-sectional dependence. Journal of Economics, Finance and Administrative
Science. https://doi.org/10.1016/j.jefas.2015.10.002
Lawrence H. Summers. (1986). Does the stock market rationally reflect fundamental values. The
Journal of Finance. https://doi.org/10.2307/2328487
Malafeyev, O., Awasthi, A., S.Kambekar, K., & Kupinskaya, A. (2019). Random Walks and Market
Efficiency in Chinese and Indian Equity Markets. Statistics, Optimization & Information
Computing. https://doi.org/10.19139/soic.v7i1.499
Narayan, P. K., Narayan, S., Popp, S., & Ali Ahmed, H. (2015). Is the efficient market hypothesis
day-of-the-week dependent? Evidence from the banking sector. Applied Economics. https://
doi.org/10.1080/00036846.2015.1005828
Niţoi, M., & Pochea, M. M. (2016). Testing financial markets convergence in Central and Eastern
Europe: A non-linear single factor model. Economic Systems. https://doi.org/10.1016/j.ecosys.
2016.02.002
Peng, C. K., Buldyrev, S. V., Havlin, S., Simons, M., Stanley, H. E., & Goldberger, A. L. (1994).
Mosaic organization of DNA nucleotides. Physical Review E, 49(2), 1685–1689. https://doi.
org/10.1103/PhysRevE.49.1685
Podobnik, B., & Stanley, H. E. (2008). Detrended cross-correlation analysis: A new method for analyzing
two nonstationary time series. Physical Review Letters, 100(8). https://doi.org/10.1103/
PhysRevLett.100.084102
Poterba, J. M., & Summers, L. H. (1988). Mean reversion in stock prices. Evidence and Implications.
Journal of Financial Economics. https://doi.org/10.1016/0304-405X(88)90021-9
Řepková, I. (2014). Efficiency of the Czech Banking Sector Employing the DEA Window Analysis
Approach. Procedia Economics and Finance. https://doi.org/10.1016/s2212-5671(14)00383-9
Sharma, D. (2018). Stock Market Performance and Efficiency of Banks in a Developing Economy:
Evidence from the Indian Banking Sector. IIM Kozhikode Society & Management Review.
https://doi.org/10.1177/2277975218770502
Sufian, F., Kamarudin, F., & Nassir, A. md. (2016). Determinants of efficiency in the Malaysian
banking sector: Does bank origins matter? Intellectual Economics. https://doi.org/10.1016/j.
intele.2016.04.002
Tai, L. (2011). Competition and Efficiency of UAE Commercial Banks. Proceedings of the Northeast
Business & Economics Association. https://doi.org/10.1111/j.1467-9701.2008.01130.x
Zebende, G. F. (2011). DCCA cross-correlation coefficient: Quantifying level of cross-correlation.
Physica A: Statistical Mechanics and Its Applications, 390(4), 614–618. https://doi.
org/10.1016/j.physa.2010.10.022
REFERENCES
AL-Hisnawi, S. S. R., Abd AL-Shara, A. S., & Al-Bidairi, K. H. A. (2018). Testing the random
movement of shares in the supply chain of some sectors listed in the Iraq stock exchange.
International Journal of Supply Chain Management.
Allegret, J. P., Raymond, H., & Rharrabti, H. (2017). The impact of the European sovereign debt
crisis on banks stocks. Some evidence of shift contagion in Europe. Journal of Banking and
Finance, 74, 24–37. https://doi.org/10.1016/j.jbankfin.2016.10.004
Aloui, C., Shahzad, S. J. H., & Jammazi, R. (2018). Dynamic efficiency of European credit sectors:
A rolling-window multifractal detrended fluctuation analysis. Physica A: Statistical Mechanics
and Its Applications. https://doi.org/10.1016/j.physa.2018.04.039
Apergis, N., & Polemis, M. L. (2016). Competition and efficiency in the MENA banking region: a
non-structural DEA approach. Applied Economics. https://doi.org/10.1080/00036846.2016.11
76112
Asaad, Z. (2017). Testing the Bank Sector at Weak Form Efficiency in Iraq Stock Exchange for Period
(2000-2014). SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3069561
Ascarya, Yumanita, D., Achsani, N. A., & Rokhimah, G. S. (2008). Measuring The Efficiency of
Islamic Bank in Indonesia and Malaysia Using Parametric and Nonparametric Approach. In
3rd International Conference on Islamic Banking and Finance.
Balcerzak, A. P., Kliestik, T., Streimikiene, D., & Smrčka, L. (2017). Non-parametric approach to
measuring the efficiency of banking sectors in European union countries. Acta Polytechnica
Hungarica. https://doi.org/10.12700/APH.14.7.2017.7.4
Bashir, T., Ilyas, M., & Furrukh, A. (2011). Testing the weak-form efficiency of Pakistani stock
markets -An empirical study in banking sector. European Journal of Economics, Finance
and Administrative Sciences.
Ching, K. S., Munir, Q., & Bahron, A. (2016). Malaysian banking sector efficiency, structural breaks
and cross-sectional dependence: Empirical evidence. Journal of Economic Cooperation and
Development.
Clemente, J., Montañés, A., & Reyes, M. (1998). Testing for a unit root in variables with a double
change in the mean. Economics Letters, 59(2), 175–182. https://doi.org/10.1016/S0165-
1765(98)00052-4
Dietrich, D., & Vollmer, U. (2012). Are universal banks bad for financial stability? Germany during
the world financial crisis. Quarterly Review of Economics and Finance, 52(2), 123–134.
https://doi.org/10.1016/j.qref.2011.12.008
Fama, E. F., & French, K. R. (1988). Dividend yields and expected stock returns. Journal of Financial
Economics. https://doi.org/10.1016/0304-405X(88)90020-7
Ferreira, P., Dionísio, A., Guedes, E. F., & Zebende, G. F. (2018). A sliding windows approach to
analyse the evolution of bank shares in the European Union. Physica A: Statistical Mechanics
and Its Applications, 490, 1355–1367. https://doi.org/10.1016/j.physa.2017.08.095
Flögel, F., & Gärtner, S. (2020). The COVID-19 Pandemic and Relationship Banking in Germany:
Will Regional Banks Cushion an Economic Decline or is A Banking Crisis Looming? Tijdschrift
Voor Economische En Sociale Geografie. https://doi.org/10.1111/tesg.12440
G.Sudha, V.Sornaganesh, M. T. S. (2020). IMPACT OF INDIAN STOCK MARKET DUE TO CRISIS
IN MARCH 2020. International Journal of Multidisciplinary Educational Research.
González, L. O., Razia, A., Búa, M. V., & Sestayo, R. L. (2019). Market structure, performance, and
efficiency: Evidence from the MENA banking sector. International Review of Economics and
Finance. https://doi.org/10.1016/j.iref.2019.05.013
Grmanová, E., & Ivanová, E. (2018). Efficiency of banks in Slovakia: Measuring by DEA models.
Journal of International Studies. https://doi.org/10.14254/2071-8330.2018/11-1/20
Guedes, E. F., Brito, A. A., Oliveira Filho, F. M., Fernandez, B. F., de Castro, A. P. N., da Silva Filho,
A. M., & Zebende, G. F. (2018). Statistical test for ΔρDCCA: Methods and data. Data in Brief.
https://doi.org/10.1016/j.dib.2018.03.080
Jain, E. (2020). Empirically testing weak form efficiency of Indian stock market: Pre and post demonetization.
International Journal of Scientific and Technology Research.
Jarque, C. M., & Bera, A. K. (1980). Efficient tests for normality, homoscedasticity and serial
independence of regression residuals. Economics Letters, 6(3), 255–259. https://doi.
org/10.1016/0165-1765(80)90024-5
Karasiński, J. (2020). The Changing Efficiency of the European Stock Markets. Annales Universitatis
Mariae Curie-Skłodowska, Sectio H – Oeconomia. https://doi.org/10.17951/h.2020.54.1.41-51
Kok, S. C., & Munir, Q. (2015). Malaysian finance sector weak-form efficiency: Heterogeneity,
structural breaks, and cross-sectional dependence. Journal of Economics, Finance and Administrative
Science. https://doi.org/10.1016/j.jefas.2015.10.002
Lawrence H. Summers. (1986). Does the stock market rationally reflect fundamental values. The
Journal of Finance. https://doi.org/10.2307/2328487
Malafeyev, O., Awasthi, A., S.Kambekar, K., & Kupinskaya, A. (2019). Random Walks and Market
Efficiency in Chinese and Indian Equity Markets. Statistics, Optimization & Information
Computing. https://doi.org/10.19139/soic.v7i1.499
Narayan, P. K., Narayan, S., Popp, S., & Ali Ahmed, H. (2015). Is the efficient market hypothesis
day-of-the-week dependent? Evidence from the banking sector. Applied Economics. https://
doi.org/10.1080/00036846.2015.1005828
Niţoi, M., & Pochea, M. M. (2016). Testing financial markets convergence in Central and Eastern
Europe: A non-linear single factor model. Economic Systems. https://doi.org/10.1016/j.ecosys.
2016.02.002
Peng, C. K., Buldyrev, S. V., Havlin, S., Simons, M., Stanley, H. E., & Goldberger, A. L. (1994).
Mosaic organization of DNA nucleotides. Physical Review E, 49(2), 1685–1689. https://doi.
org/10.1103/PhysRevE.49.1685
Podobnik, B., & Stanley, H. E. (2008). Detrended cross-correlation analysis: A new method for analyzing
two nonstationary time series. Physical Review Letters, 100(8). https://doi.org/10.1103/
PhysRevLett.100.084102
Poterba, J. M., & Summers, L. H. (1988). Mean reversion in stock prices. Evidence and Implications.
Journal of Financial Economics. https://doi.org/10.1016/0304-405X(88)90021-9
Řepková, I. (2014). Efficiency of the Czech Banking Sector Employing the DEA Window Analysis
Approach. Procedia Economics and Finance. https://doi.org/10.1016/s2212-5671(14)00383-9
Sharma, D. (2018). Stock Market Performance and Efficiency of Banks in a Developing Economy:
Evidence from the Indian Banking Sector. IIM Kozhikode Society & Management Review.
https://doi.org/10.1177/2277975218770502
Sufian, F., Kamarudin, F., & Nassir, A. md. (2016). Determinants of efficiency in the Malaysian
banking sector: Does bank origins matter? Intellectual Economics. https://doi.org/10.1016/j.
intele.2016.04.002
Tai, L. (2011). Competition and Efficiency of UAE Commercial Banks. Proceedings of the Northeast
Business & Economics Association. https://doi.org/10.1111/j.1467-9701.2008.01130.x
Zebende, G. F. (2011). DCCA cross-correlation coefficient: Quantifying level of cross-correlation.
Physica A: Statistical Mechanics and Its Applications, 390(4), 614–618. https://doi.
org/10.1016/j.physa.2010.10.022
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Registration number.: 28157347