The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery

Zeng, Jin, Zhang, Yijia, Yin, Yun and Moffatt, Peter G. (2024) The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery. Data Science in Finance and Economics, 4 (4). pp. 531-547. ISSN 2769-2140

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Abstract

We develop an extension to the GARCHX model-named GARCHX-NL-that captures a key stylized fact for stock market return data seen during the COVID-19 pandemic: an abrupt jump in volatility at the onset of the crisis, followed by a gradual return to its precrisis level. We apply the GARCHX-NL procedure to daily data on various major stock market indexes. The profile likelihood method is used for estimation. The model decomposes the overall impact of the crisis into two measures: the initial impact, and the “half-life” of the shock. We find a strong negative association between these two measures. Moreover, countries with low initial impact but a long half-life tend to be emerging markets, while those with high initial impact and short half-life tend to be developed economies with well-established stock-markets. We attribute these differences to differences in investors’ sensitivity to adverse news, and to differences in the preparedness of stock markets to absorb the effects of crises such as the COVID-19 pandemic.

Item Type:	Article
Additional Information:	Special Issue: Volatility and Asymmetric Models in Finance and Economics
Uncontrolled Keywords:	covid-19 pandemic,garch,garchx,market volatility,profile likelihood,artificial intelligence,decision sciences (miscellaneous),economics and econometrics,finance,computer science applications,statistics and probability,statistics, probability and uncertainty ,/dk/atira/pure/subjectarea/asjc/1700/1702
Faculty \ School:	Faculty of Social Sciences > School of Economics
UEA Research Groups:	Faculty of Medicine and Health Sciences > Research Centres > Norwich Institute for Healthy Aging Faculty of Social Sciences > Research Groups > Behavioural Economics Faculty of Social Sciences > Research Groups > Applied Econometrics And Finance Faculty of Social Sciences > Research Centres > Centre for Behavioural and Experimental Social Sciences Faculty of Science > Research Groups > Statistics
Related URLs:	http://www.scopus.com/inward/record.url?...
Depositing User:	LivePure Connector
Date Deposited:	15 Nov 2024 12:30
Last Modified:	06 Mar 2026 15:30
URI:	https://ueaeprints.uea.ac.uk/id/eprint/97690
DOI:	10.3934/DSFE.2024022

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