The novel Coronavirus disease (COVID-19) has quickly evolved from a provincial health scare to a global meltdown. While it has brought nearly half the world to a standstill it has affected the financial markets in unseen ways by eroding a quarter of wealth in nearly a month. This paper investigates the reaction of financial markets globally in terms of their decline and volatility as Coronavirus epicentre moved from China to Europe and then to the US. Findings suggest that the earlier epicentre China has stabilized while the global markets have gone into a freefall especially in the later phase of the spread. Even the relatively safer commodities have suffered as the pandemic moves into the US.
This research attempts to explore the total of 21 potential internal and external shocks to the European market during the Covid-19 Crisis. Using the time series of 1 Jan 2020 to 26 June 2020, I employ a machine learning technique, i.e. Least Absolute Shrinkage and Selection Operator (LASSO) to examine the research question for its benefits over the traditional regression methods. This further allows me to cater to the issue of limited data during the crisis and at the same time, allows both variable selection and regularization in the analysis. Additionally, LASSO is not susceptible to and sensitive to outliers and multi-collinearity. The European market is mostly affected by indices belonging to Singapore, Switzerland, Spain, France, Germany, and the S&P500 index. There is a significant difference in the predictors before and after the pandemic announcement by WHO. Before the Pandemic period announcement by WHO, Europe was hit by the gold market, EUR/USD exchange rate, Dow Jones index, Switzerland, Spain, France, Italy, Germany, and Turkey and after the announcement by WHO, only France and Germany were selected by the lasso approach. It is found that Germany and France are the most predictors in the European market.•A LASSO approach is used to predict the European stock market index during COVID-19•European market is mostly affected by the indices belonging to Singapore, Switzerland, Spain, France, Germany, and the S&P500 index.•There is a significant difference in the predictors before and after the pandemic announcement by WHO.