Fernando Fernández-Rodríguez

This article tries to shed light on the historical analogies of the ongoing COVID-19 pandemic. To that end, we compare the sample distribution of Dow Jones Industrial Average Index returns for a 420-day period (from 2 January 2020 to 31 August 2021), with all historical sample distributions of returns computed using a moving window of 420 days in the 2 January 1900 to 1 May 2018 period. We find that the stock market return distribution during the pandemic would be similar to several past sub-periods of severe financial crises that evolved into intense recessions, being the sub-sample from 3 June 1986 to 28 January 1988 the most analogous episode to the present situation. Furthermore, we also identify a period from 23 June 1931 to 24 February 1933 where the severity of the crisis overcomes the pandemic situation having sharper tail events. Finally, we find that the current stock market CVaR risk is not higher than that observed during the 1930s.

This paper empirically investigates volatility transmission among stock and foreign exchange markets in seven major world economies during the period July 1988 to May 2018. To this end, we first perform a static and dynamic analysis to measure the total volatility connectedness in the entire period (the system-wide approach). Second, we make use of a dynamic analysis to evaluate the net directional connectedness for each market. To gain further insights, we examine the time-varying behaviour of net pair-wise directional connectedness during the financial turmoil periods experienced in the sample period Our results suggest that slightly more than half of the total variance of the forecast errors is explained by shocks across markets rather than by idiosyncratic shocks. Furthermore, we find that volatility connectedness varies over time, with a surge during periods of increasing economic and financial instability.

In this article, we present an analysis of the effectiveness of various portfolio optimization strategies applied to the stocks included in the Spanish Ibex 35 index, for a period of 14 years, from 2001 until 2014. The period under study includes episodes of volatility and instability in financial markets, incorporating the Global Financial Crisis and the European Sovereign Debt Crisis. This implies a challenge in portfolio optimization strategies since the methodologies are restricted to the assignment of positive weights. We have taken for asset allocation the daily returns with an estimation window equal to 1 year and we hold portfolio assets for another year. This article attempts to influence the discussion over whether the naive diversification proves to be an effective strategy as opposed to portfolio optimization models. For that, we evaluate the out-of-sample performance of 15 strategies for asset allocation in the Ibex 35, before and after of the Global Financial Crisis. Our results suggest that a large number of strategies outperform to the 1/N rule and to the Ibex 35 index in terms of return, Sharpe ratio and lower VaR and CVaR. The mean-variance portfolio of Markowitz with short-sale constraints is the only strategy that renders a Sharpe ratio statistically different from Ibex 35 index in the 2001–2007 and 2008–2014 time periods.