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Finance Research Letters

journal homepage: www.elsevier.com/locate/frl

Co-movements in sector price indexes during the COVID-19 crisis:

Evidence from the US
Hela Nammouri a, Souhir Chlibi b, Oussama Labidi c, *
a
ESDES Business School of UCLyon, 10, place des archives, 69002, Lyon, France
b
RIME Lab, University of Lille and URRED, University of Gabes Tunisia
c
ESDES Business School of UCLyon, 10, place des archives, 69002, Lyon, France

A R T I C L E I N F O A B S T R A C T

Keywords: This paper is an examination of co-movements between sector indexes in the United States prior
COVID-19 to and during the COVID-19 period. Using daily data between January 2013 and July 2020, this
Sector index co-movements study is the first to examine sectoral cointegration, as well as how contagion occurs from one
Contagion
healthcare sector to others. We find that only five sectors reacted to the shock to the healthcare
Vector error correction model, healthcare
sector index
sector. Our findings can assist policymakers in appropriately responding to the current crisis and
tackling potential pandemics in the future. Our findings are also valuable for stockholders in
terms of predicting price changes and improving portfolio diversification.

1. Introduction

In recent years, financial crises have multiplied, which has affected the evolution and connection of stock markets. Several studies
on the contagion phenomenon have explored co-movement between sectors during periods of crisis. For instance, Phylaktis and Xia
(2009) highlighted the advantages of the sectoral contagion phenomenon that provides some benefits of international diversification
during crises. Similarly, Baur (2012) examined co-movement between the financial sector and the other real economy sectors in
twenty-five major stock markets during the subprime crisis. Notably, the study found that all sectors and countries were exposed to
adverse effects of the crisis, although some sectors (i.e., healthcare, telecommunications, and technology) realized only minor impacts.
The current global COVID-19 health crisis has increased stock price co-movements, severely affecting the financial system. In response,
a growing body of literature has examined the effects of COVID-19 on stock market returns (M. Akhtaruzzaman et al., 2021; Mazur
et al., 2021; Topcu and Gulal, 2020; Zhang et al., 2020). These researchers employ various methods to investigate the link between the
COVID-19 breakdown and global financial market performance. Other researchers have explored the effect of contagion on various
asset classes—such as oil, gold, and cryptocurrency—as safe havens or hedges during the COVID-19 pandemic((Akhtaruzzaman et al.,
2020a; Akhtaruzzaman et al., 2020b), 2021; Corbet et al., 2020; Devpura and Narayan, 2020; Gharib et al., 2021; Gunay, 2020; Mensi
et al., 2020; Salisu et al., 2020, 2021; Sharif et al., 2020). Interestingly, the sectoral dimension of the COVID-19 pandemic has been
illustrated by several recent empirical studies (Baek et al., 2020; Hanif et al., 2021; Rizwan et al., 2020), but only M. Akhtaruzzaman
et al. (2021) and Shahzad et al. (2021) have focused on the connection between sector indexes during the COVID-19 period.
Furthermore, to the best of our knowledge, these studies have not examined sectoral co-movements by focusing specifically on the

JEL: C58, F36, G01

* Corresponding author.
E-mail addresses: [email protected] (H. Nammouri), [email protected] (S. Chlibi), [email protected] (O. Labidi).

https://doi.org/10.1016/j.frl.2021.102295
Received 6 October 2020; Received in revised form 12 June 2021; Accepted 3 July 2021
Available online 7 July 2021
1544-6123/© 2021 Elsevier Inc. All rights reserved.

Please cite this article as: Hela Nammouri, Finance Research Letters, https://doi.org/10.1016/j.frl.2021.102295
H. Nammouri et al. Finance Research Letters xxx (xxxx) xxx

healthcare sector as the source of sectoral contagion during the COVID-19 outbreak. This study aims to fill this knowledge gap and use
cointegration analysis to examine the shock of the healthcare sector to other sectors. In practice, the healthcare sector plays a vital role
in the global economy Chen (2016). However, the analysis of co-movement between healthcare sectors and other sectors is not widely
explored in the current body of literature. In this context, studies by Chen et al. (2015, 2017) confirm the importance of the dual issues
of contagion and the healthcare sector. Specifically, they examined the dynamic relationship of returns in the healthcare sector among
different stock markets (the US, UK, and Germany) using the continuous wavelet approach. Our work contributes to the literature in
two ways: While most COVID-19-related finance research has studied the crisis effects on sectoral performance or risk, we explored the
co-movements between the healthcare sector and other industries before and during the COVID-19 crisis. Moreover, we identify the
most cointegrated sector indexes and explain their relationship with the healthcare sector.
The study highlights two main findings: First, we find evidence of five relationships between sectors during the COVID-19 crisis.
Second, we show that contagion occurs from one healthcare sector to five other sectors. The results indicate that the healthcare sector
price is an important indicator that can assist policymakers in developing early economic and healthcare policy responses, especially
during this unprecedented pandemic. This finding is consistent with the existing literature (Barro, 2013; Koijen et al., 2016; Sala-I-­
Martin et al., 2004), suggesting that the healthcare industry is an important determinant of economic growth, making it a very
attractive sector for investors (Allen, 2021). However, our results differ significantly from Akhtaruzzaman et al., 2021b, who
demonstrate the central role of financial institutions while using a dynamic cross-correlation analysis, and Shahzad et al. (2021), who
use network analysis to examine the interaction between sector indexes and highlight the central role of the IT sector.
This paper is organized into four major sections. Section 2 describes the data and provides descriptive statistics. Section 3 outlines
and discusses our empirical results. Finally, Section 4 summarizes the main conclusions of this study.

2. Data and preliminary analysis

2.1. Data

We use daily data of the main sectoral index prices in the US: energy, materials, industrial (INDUST), consumer discretionary
(CONS_DISCR), consumer staples (CONS_STAPLES), healthcare (HEALTH), financials, information technology (IT), communication
services (COM_SERVICE), utilities, and real estate.1 The healthcare index is considered as the benchmark index to evaluate sectoral
contagion before and during the COVID-19 period.
Data were collected from DataStream. We divide our sample period into two sub-periods: the pre-COVID-19 period (January 1,
2013–January 22, 2020) and the COVID-19 period (January 23, 2020–July 29, 2020). We started in January 2013 to avoid over­
lapping with the great recession of 2007–2012. On the other hand, we choose the start date of the COVID-19 period as the date of the
first confirmed case reported by the World Health Organization.
We apply the following empirical methodology: first, we check for multivariate cointegration using Johansen’s cointegration
model (1988), and conduct a bivariate cointegration analysis to measure co-movements between the healthcare sector and other
sectors. Once we detected the cointegration relationships, we moved to the estimation of a vector error correction model (VECM) for
each cointegrated pair of sectors. Finally, we test the short-and long-run Granger causality in the VECM between sector indexes.

2.2. Descriptive statistics

Table 1 presents the descriptive statistics of the daily index prices of the 11 sectors used in this study. From this table, we can see
that the average price index of all sectors increased during the COVID-19 crisis, except in the energy sector. The latter recorded an
increase in its standard deviation, suggesting an increase in volatility. In contrast, we observe that the volatility of all other sectors
decreased during the pandemic period. Fig. 1 shows that the most important decline in stock prices in all sectors occurred between
February and March 2020. Furthermore, the kurtosis values are different from 3, which means that the distributions are leptokurtic.
Moreover, the skewness values are different from 0, so the distributions are not skewed. This implies that the normality assumption is
rejected for all series.
To conduct a cointegration analysis, it is necessary to check whether the series of stock prices meets two conditions: non-
stationarity and having the same order of integration. Thus, we applied different tests: the augmented Dickey-Fuller test (ADF)
test, the Philips–Perron (PP) test, and the Kwiatkowski –Phillips–Schmidt–Shin (KPSS) test. Tables 2 and 3 present the results of the
stationarity tests. We found that all series are non-stationary in level, and we tested the stationarity of the series in the first difference,
where the results indicate that our series is I (1). Therefore, we can apply cointegration tests using Johansen’s cointegration model
(1988).

2.3. Correlation analysis between the healthcare sector and other sectors

We note that during the COVID-19 period, correlations increased with some sectors and decreased with others, which reflects signs
of sectoral contagion (Table 4).

1
We chose sector classification according to the Global Industry Classification Standard structure (GICS). https://www.msci.com/gics

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Table 1
Summary Statistics.
Sectoral index prices: Pre-COVID-19-period (January 1, 2013-January 22, 2020)
COM_SERVICE CONS_DISCR CONS_STAPLES ENERGY FINANCIALS HEALTH INDUST IT MATERIALS REAL_ESTATE UTILITIES

Mean 95.193 316.359 312.945 407.989 181.083 312.76 341.51 237.181 343.046 491.437 285.647
Median 95.32 292.65 321.7 400.86 160.75 307.52 319.43 197.61 330.62 492.8 284.67
Maximm 138.41 498.9 433.89 534.38 272.98 475.32 497.71 477.52 450.76 716.62 443.62
Minimum 70.53 166.73 196.37 290.35 103.07 159.09 198.13 116.43 235.87 336.16 181.58
Std. Dev. 13.962 85.312 53.218 43.414 44.509 71.412 75.617 88.937 56.857 90.141 60.698
Skewness 0.637 0.363 − 0.073 0.517 0.259 − 0.085 0.16 0.606 0.043 0.446 0.379
Kurtosis 2.913 2.013 2.299 3.381 1.695 2.274 1.823 2.203 1.856 2.673 2.347
Jarque-Bera 125.086 115.256 39.41 93.289 151.479 42.722 114.317 161.765 101.124 69.436 76.765
Sum 175,440.6 583,050.4 576,757.6 751,923.9 333,736.1 576,417.1 629,402.1 437,123.6 632,233.2 905,717.7 526,446.5
Sum.Sq.Dev. 359,051 13,406,219 5,216,773 3,471,700 3,649,172 9,393,527 10,532,553 14,569,908 5,954,637 14,966,916 6,786,277
Sectoral index prices: COVID-19-period (January 23, 2020-July 29, 2020)
3

COM_SERVICE CONS_DISCR CONS_STAPLES ENERGY FINANCIALS HEALTH INDUST IT MATERIALS REAL_ESTATE UTILITIES
Mean 126.8204 490.7027 403.0807 255.9677 214.0749 451.536 411.9482 463.786 392.9745 625.6058 391.9844
Median 130.57 496.555 402.5 246.7 206.725 459.525 412.93 473.05 401.18 625.31 384.48
Maximum 141.21 598.92 438.46 362.99 274.98 496.67 503.44 542.38 456.27 749.58 461.15
Minimum 99.21 349.35 330.74 153.4 154.1 341.62 293.81 343.59 278.51 449.99 292.48
Std. Dev. 11.24657 61.16602 21.74034 50.747 30.38693 30.97916 49.10671 49.19097 42.30074 64.65905 34.62291
Skewness − 0.805972 − 0.37594 − 0.617415 0.528358 0.743153 − 1.370999 0.180243 − 0.505109 − 0.653923 0.024206 0.296267
Kurtosis 2.577858 2.611899 3.684157 2.690328 2.645203 4.573796 2.384708 2.466666 2.595467 2.722196 2.861378
Jarque-Bera 15.50251 3.997359 11.12689 6.770046 13.03701 55.80756 2.83932 7.286166 10.46377 0.443978 2.067577
Sum 16,993.94 65,754.16 54,012.82 34,299.68 28,686.04 60,505.83 55,201.06 62,147.33 52,658.58 83,831.18 52,525.91
Sum.Sq.Dev. 16,822.56 497,590.6 62,861.45 342,509.3 122,807.6 127,641.2 320,725.4 321,827 237,983.9 556,045.5 159,433.2

Notes: Our sample contains daily data. The period sample is divided into two sub-periods, where the pre-COVID-19 period is from 1 January 2013 to 22 January 2020 and the COVID-19 period is from 23
January 2020 to 29 July 2020.
Jarque–Bera statistic tests for the null hypothesis of Gaussian distribution.

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Fig. 1. Evolution of sectoral stock prices. Notes: The above figure shows the daily prices of sectoral indexes during two sub-periods (Panel A and
Panel B), where the pre-COVID-19 period is from 1 January 2013 to 22 January 2020 and the COVID-19 period is from 23 January 2020 to 29
July 2020.

However, this analysis did not consider the temporal variability of interdependence. Therefore, we use the dynamic conditional
correlation (DCC) model developed by Engle (2002). The author proposes a new class of multivariate GARCH estimators, which is a
generalization of the Bollerslev (1990) constant conditional correlation (CCC) estimator. The dynamic correlation model allows the
matrix correlation to be time-varying.
Fig. 2 shows the time-varying correlation between the healthcare sector and other sectors during the entire period (from January 1,
2013, to July 29, 2020). The results of the DCC show that the healthcare sector is correlated with other sectors during the COVID-19

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Table 2
Testing Stationarity for the Pre-COVID-19-period (January 1, 2013-January 22, 2020).
ADF TEST PP TEST KPSS TEST
In level In first difference In level In first difference In level In first difference

COM_SERVICE − 0.22 − 42.91*** − 0.11 − 42.97*** 4.61*** 0.12

CONS_DISCR − 0.25 − 42.88*** − 0.23 − 42.89*** 5.29*** 0.05
CONS_STAPLES − 0.81 − 42.86*** − 0.76 − 42.93*** 5.10*** 0.06
ENERGY − 2.37 − 43.04*** − 2.37 − 43.05*** 1.21*** 0.082
FINANCIALS − 0.59 − 43.32*** − 0.59 − 43.32*** 5.15*** 0.04
HEALTH − 0.75 − 41.79*** − 0.69 − 41.87*** 5.12*** 0.06
INDUST − 0.74 − 41.73*** − 0.73 − 41.71*** 5.24*** 0.03
IT 1.73 − 33.47*** 1.43 − 44.07*** 5.18*** 0.36
MATERIALS − 1.42 − 41.82*** − 1.42 − 41.82*** 4.68*** 0.03
REAL_ESTATE − 0.06 − 41.88*** 0.03 − 41.93*** 4.90*** 0.10
UTILITIES 0.26 − 32.67*** 0.37 − 42.48*** 5.14*** 0.13

Notes: The above table contains the statistics of the ADF tests, the PP test and the KPSS test on both the levels and differences of variables during Pre-
COVID-19-period (January 1, 2013-January 22, 2020).
Rejection of the null hypothesis at the 1%, 5% and 10% is denoted by ***, **, and * respectively.

Table 3
Testing Stationarity for the COVID-19-period (January 23, 2020-July 29, 2020).
ADF TEST PP TEST KPSS TEST
In level In first difference In level In first difference In level In first difference

COM_SERVICE − 0.87 − 17.15*** − 1.19 − 16.37*** 0.43**

0.32
CONS_DISCR − 0.58 − 7.06*** − 0.51 − 13.68*** 0.72**
0.30
CONS_STAPLES − 1.75 − 15.60*** − 2.20 − 15.44*** 0.23*** 0.19
− 2.15 − 12.28*** − 2.15 − 12.25*** 0.37** 0.31
ENERGY
− 1.93 − 7.27*** − 1.92 − 14.46*** 0.25
FINANCIALS 0.46**
− 1.35 − 16.06*** − 1.47 − 15.91*** 0.49*
HEALTH 0.17
− 1.87 − 6.79*** − 1.83 − 13.41*** 0.31*** − 13.41
INDUST
− 0.54 − 17.92*** − 0.87 − 17.53*** 0.69* 0.27
IT
− 0.54 − 6.96*** − 0.87 − 13.34***
MATERIALS 0.69* 0.27
− 2.11 − 6.91*** − 1.32 − 13.93*** 0.35** 0.15
REAL_ESTATE
− 2.35 − 7.21*** − 2.17 0.48*
UTILITIES − 13.89*** 0.14

Notes: The above table contains the statistics of the ADF test, the PP test and the KPSS test on both the levels and differences of variables during
COVID-19-period (January 23, 2020-July 29, 2020).
Rejection of the null hypothesis at the 1%, 5% and 10% is denoted by ***, **, and * respectively.

period (from the end of 2019 through the beginning of 2020). There is considerable interdependence between these sectors and the
healthcare sector, as shown in Fig. 2. Indeed, the correlation between these sectors accelerated throughout the post-crisis period. We
can observe that the cross-correlations of index returns are dynamic and show upward trends related to crisis events. Therefore, the
dynamic correlation estimates confirm the varying and volatile interdependencies between the sectors. After estimating the time-
varying correlation, we apply cointegration tests to measure the level of this interdependence and to specify a common long-term
trend.

3. Empirical results and discussion

3.1. Testing for multivariate cointegration

Johansen’s multivariate cointegration test among the US sectors reveals the existence of a single long-run cointegration rela­
tionship before the COVID-19 period (see Table 5). These sectors were not integrated before the crisis. However, the cointegration
results show evidence of five relationships between sectors during the COVID-19 crisis, which can be explained by the contagion effect.
These results prove that the markets are integrated. Furthermore, these cointegrating relationships between sector indexes reflect their
convergence toward a certain stable equilibrium level over the long term.

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Table 4
Correlation analysis between the health care sector and other sectors.
Pre-COVID-19-period (January 1, 2013-January 22, 2020)
COM_SERVICE CONS_DISCR CONSSTAPLES ENERGY FINANCIALS INDUST IT MATERIALS REAL_ESTATE UTILITIES
6

Pearson correlation with health care sector 0.875 0.970 0.951 − 0.313 0.944 0.957 0.952 0.917 0.932 0.942
COVID-19–period (January 23, 2020-July 29, 2020)
Pearson correlation with health care sector 0.915 0.910 0.795 0.565 0.503 0.651 0.907 0.896 0.579 0.511

Note: the above table contains the Pearson correlation coefficients between health care sector and the other sectors before and during COVID-19 period.

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Fig. 2. Conditional correlation between the health sector and the other sectors. Notes: The figure above represents the estimated dynamic
correlations between the health sector index and the other sector indexes during the COVID-19 period (from January 23, 2020, to July 29, 2020).

3.2. Testing for bivariate cointegration

The healthcare index is considered the benchmark index to evaluate co-movements and the integration of other sector indexes in
relation to the healthcare sector index. The bivariate cointegration test between the healthcare sector and the other sectors showed the
absence of a stable equilibrium relationship before the health crisis, and hence their segmentation.
Fig. 3 shows the response of the sectors to one standard deviation shock to the healthcare sector. We observe that the standard
deviation shock to the healthcare index has a noticeable impact on all sectors from the first period. These responses sharply decline
until period 2 and then gradually increase.
However, the bivariate cointegration test during the COVID-19 period indicated five relationships between the healthcare index
and the other sector indexes. Indeed, we did not reject the cointegration hypothesis for five pairs: health-communication services,
health-consumer discretionary, health-financials, health-industrials, and health-materials (see Table 6), highlighting co-movements
around a common tendency for the stock prices of these sectors.
Regarding the communication services and the consumer discretionary sector, the cointegration with the healthcare sector can be
explained by two points: first, the increasing demand for communication tools during the confinement, and second, the rise in
discretionary expenses resulting from the lockdown and possible rise in the level of savings of households. Regarding materials, the
market saw an important rise in some safe-haven assets such as gold, or essential mining materials, such as copper, due to supply
shortages and lockdowns. Concerning the industrial and financial sectors, they both registered a sharp decline during confinement and
then started to rise slowly.
Therefore, the birth of new relationships with the healthcare industry in response to the COVID-19 crisis reflects the contagion’s

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Table 5
Testing for multivariate cointegration.
Pre-COVID-19-period (January 1, 2013-January 22, 2020)
Null hypothesis J trace J max
r=0 303.7518* 66.2009
r=1 237.5508 64.5047
COVID-19-period (January 23, 2020-July 29, 2020)
r=0 387.2194* 92.8011*
r=1 294.4183* 69.6266*
r=2 224.7917* 52.1832
r=3 172.6084* 43.0205
r=4 129.5879* 39.5865
r=5 90.0014 34.3672

Notes: J Trace and J max indicate the statistics of Johansen’s cointegration model (1988).
Rejection of the null hypothesis of no cointegration at the 5% is denoted by *.

Fig. 3. Impulsive response of sectors during COVID-19 period. Notes: The blue lines show the impulsive response of each sector index to the one
standard deviation shock to health during the COVID-19 period (from January 23, 2020, to July 29, 2020), while the red lines indicate the 95
percent confidence interval.

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Table 6
Testing for bivariate cointegration during COVID-19-period.
HEALTH - COMMUNICATION_SERVICES

Null hypothesis J trace J max

r=0 17.3578* 13.1019
r=1 4.2559* 4.2559*
HEALTH - CONS_DISCR
Null hypothesis J trace J max
r=0 17.8316* 17.2738*
r=1 0.55781 0.5578
HEALTH - FINANCIALS
Null hypothesis J trace J max
r=0 16.4954* 12.7269
r=1 3.7685 3.7685
HEALTH- INDUSTRIALS
Null hypothesis J trace J max
r=0 16.1833* 9.6312
r=1 6.5521* 6.5521
MATERIALS- HEALTH
Null hypothesis J trace J max
r=0 17.0040* 12.4725*
r=1 4.5315* 4.5316*

Notes: J Trace and J max indicate the statistics of Johansen’s cointegration model (1988).
Rejection of the null hypothesis of no cointegration at the 5% is denoted by *.

Table 7
Short- and Long-Run Causality in VECM.
Causality test F-statistic

Test for Materials causes health 2.0129**

Test for Materials long-run causing health 6.6503**
Test for health causes Materials 1.1020
Test for health long-run causing Materials 1.8370
Test for Industrials causes health 1.5944
Test for Industrials long-run causing health 6.6025**
Test for health causes Industrials 0.8894
Test for health long-run causing Industrials 2.9237*
Test for communication services causes health 0.6815
Test for communication services long-run causing health 0.0387
Test for health causes communication services 0.5054
Test for health long-run causing communication services 0.0053
Test for Financial causes health care 1.4605
Test for Financial long-run causing health 8.9605***
Test for health causes Financial 0.9352
Test for health long-run causing Financial 4.6994**
Test for consumer discretionary causes health 1.8020*
Test for consumer discretionary long-run causing health 9.6476***
Test for health care index causes consumer discretionary 0.9487
Test for health care index long-run causing consumer discretionary index 2.8839*

Notes: The above table shows the results of causality tests between the health sector and the other sector
indexes during COVID-19-period. It contains the statistics of Causality in VECM.
Rejection of the null hypothesis of no Causality at ***, ** and * is denoted by 1%, 5% and 10% levels of
significance, respectively.

occurrence from the healthcare sector to other sectors. This finding indicates the importance of the healthcare sector’s impact on the
progress of society as a whole Chen (2016). The findings of this study align with those of Chen et al. (2017), who highlight the role of
healthcare stock as a predictor of short and long stock prices.
The results of the bivariate cointegration test enabled us to estimate the VECM for each of the above pairs of sectors. The analysis of
the VECM estimation yielded two interesting results: first, we noticed the presence of a significant and negative adjustment term for all
pairs under question, and second, the value of the adjustment term is significantly higher for the financial sector, suggesting a rapid
mean reversion toward the healthcare sector during the COVID-19 crisis.
Table 7 shows the short-and long-run causality tests between the healthcare sector and other sectors. We can observe short-and
long-run bidirectional relationships between industrial and consumer discretionary. On the other hand, there are short-and long-
run relationships between healthcare and financials. Regarding materials and healthcare, we notice short-and long-run unidirectional
relationships.

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4. Conclusions

This study explored sectoral index co-movements in the US healthcare index during the COVID-19 pandemic. Our findings
demonstrate that the pandemic has had a significant impact on the cointegration of sector indexes. This investigation also shows that
sector co-movements appeared during the COVID-19 period. In line with previous studies (Baker et al., 2020; Mazur et al., 2021), we
argue that lockdown impacts the tendency of sector price indexes. This research area is relevant and significant, providing a better
understanding of the relationships between different sector indexes. In line with Phylaktis and Xia (2009), we can conclude that
identifying sectoral contagion during this pandemic has great importance for portfolio diversification. Our findings also have policy
implications for regulators, investors, and other market stakeholders. With co-movement assessment tools, policymakers can design
appropriate interventions to moderate risk from the co-movement of financial assets. Understanding the sectoral co-movement and
timely healthcare policy decisions during a pandemic is also critical for investors, portfolio managers, policymakers, and other market
participants, allowing stakeholders to be better prepared to adopt strategies for successfully limiting risks during future health crises.

Supplementary materials

Supplementary material associated with this article can be found, in the online version, at doi:10.1016/j.frl.2021.102295.

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