Discuss the response of stock market to COVID-19. Is there evidence of market (in)efficiency?
(the impact of COVID-19 on domestic financial markets and institutions in USA)
You are required to create a detailed report on the impact of COVID-19 on domestic financial markets and institutions in USA. You should use the same country for all parts of the report. Your discussion should be supported by illustrations and academic literature. You are asked to include the following topics:
1. The Money Markets: Examine the impact of COVID-19 on the money markets. Critically discuss the evolution of interest rates (i.e. discount rates and yields) and credit spreads of various money market instruments and explain the factors that caused the trends you observe. (750 words)
2. The Bond Markets: Explain how and why was bond market affected? Critically evaluate how portfolio value, current yield and yield to maturity was influenced for investors (i) selling their bond portfolio during pandemic but before maturity (ii) holding the bond portfolio till maturity (iii) starting to invest in bond markets during pandemic. (750 words)
3. The Stock Markets: Discuss the response of stock market to COVID-19. Is there evidence of market (in)efficiency? (750 words)
4. Central Bank Intervention: Discuss how the central bank of the country you have chosen has intervened in the financial markets to maintain financial stability and support economic growth, in response to Covid-19 pandemic. Using literature, elaborate on the policy tools used and the impact of such intervention on the financial markets and wider economy. What other actions by the central bank could have improved the current state of the markets and economy? (750 words)
*All your work should be supported with charts, graphs and illustrations which should be inserted at an appropriate point in the text and should be easily readable.