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Is the Equity Market becoming more resilient to global turmoil?

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The geopolitical tensions of 2022 are bringing back volatility to the markets.

Covid outbreak

The Covid outbreak in 2020 had already marked a turning point, with volatility at consistently higher levels than historically, translating into uncertainty over future expectations. From a microstructure standpoint, market quality is considered to be very sensitive to volatility: it is generally observed to deteriorate as volatility increases.

Ukraine and Russia

Nonetheless, based on empirical observations during the ongoing crisis between Ukraine and Russia, the overall equity market in Europe now seems to be more resilient to distortions driven by global events.

Market quality metrics

In this study, Euronext provides a short analysis comparing the market quality metrics in 2020 during the first wave of the Covid-19 outbreak and the recent market turmoil in 2022 caused by the Ukraine-Russia crisis.

    Euronext Equity Market Quality Analysis report 

    In this report, we observe that since early 2020, volatility and equity trading volumes have skyrocketed due to global markets turmoil, but European market quality appears to be more resilient to distortions during the Ukraine-Russia crisis in early 2022 than during the first Covid-19 wave in 2020.

    During these recent geopolitical tensions, Euronext has maintained stronger metrics than MTFs in terms of average spreads and EBBO Presence/Setting. 

    This testifies to Euronext’s resilient market quality, proving again its reliability even in times of unprecedented levels of volatility.

    Executive summary

    • Since early 2020, volatility and equity trading volumes have skyrocketed due to global market turmoil, driven by the Covid-19 pandemic waves and the ongoing Ukraine-Russia crisis.

    • European market quality has been more resilient to distortions during the Ukraine-Russia crisis in early 2022 than during the first Covid-19 wave in 2020.

    • Even during the recent geopolitical tensions, Euronext has maintained stronger metrics than MTFs in terms of average spreads and EBBO Presence/Setting

    Methodology

    • Market quality metrics are analysed for CAC 40® constituents, which are among the most liquid and highly traded securities on Euronext and at pan-European level. By selecting this subset, we exclude the potential impact of illiquid securities.
    • The data range covers two volatile periods: “First Covid wave” from 3 February 2020 to 30 April 2020, and “Ukraine-Russia crisis” from 3 January 2022 to 31 March 2022.
    • The red dotted lines in the charts highlight the relevant dates during the two periods: 16 March 2020, the day the first lockdown was announced in France, and 24 February 2022, the beginning of the Ukraine-Russia crisis.
    • Volatility is evaluated using the VSTOXX® Index (V2TX), which measures the volatility of the EURO STOXX 50 Index.
    • The market quality data in this study is sourced by the independent provider BMLL Technologies, and three metrics are analysed: Spread, European Best Bid & Offer (EBBO) Setting and EBBO Presence

    Download Is the Equity Market becoming more resilient to global turmoil?

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