The Effect of the Pandemic and the War in Ukraine on the Riskiness of Financial Investments in Three Central European Countries

ABSTRACT

The COVID pandemic and the war in Ukraine are extraordinary events causing excessive turbulence in financial markets. Considering the leptokurtic and heteroscedastic properties of returns on financial assets, we examine the suitability of several alternatives for modeling returns to choose the most suitable option to compute the VaR and CVaR for returns of three stock market indices as well as euro exchange rates in Czechia, Poland, and Hungary. Using an appropriate test, we evaluate how the two metrics of VaR and CVaR changed during the pandemic and the war in Ukraine up to June 2022.

KEYWORDS:

• Central European countries
• COVID pandemic
• GARCH model
• VaR and CVaR
• war in Ukraine

JEL Classification:

• C13
• C46
• G32

Acknowledgments

This paper has been prepared with financial support of grant No. IP 100040 from Prague Economics and Business University and grant GACR 22-19617S, which the authors gratefully acknowledge.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. This definition ensures that a loss is always negative and a profit always positive.

2. This result is similar to the finding of Wang et al. (2022) for commodities.

Additional information

Funding

The work was supported by the Grantová Agentura České Republiky [GACR 22-19617S]; Vysoká Škola Ekonomická v Praze [IP 100040].

Notes on contributors

Quang Van Tran

Quang Van Tran is an associate professor in finance at Prague University of Economics and Business as well as at the Czech Technical University in Prague. His research interests are macroeconomic modeling, financial econometrics, macrofinance, and machine learning application in economics and finance. He is a holder of the Ph.D. degree in Finance from Prague University of Economics and Business.

Jiri Malek

Jiri Malek is an associate professor in finance at the Prague University of Economics and Business. His research focuses on the areas of stochastic processes modeling, asset pricing models as well as applied financial econometrics. He holds a Ph.D. degree in Finance from Prague University of Economics and Business.