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

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.