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. 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 stylised fact for stock market return data seen during the Covid pandemic: an abrupt jump in volatility at the onset of the crisis, followed by a gradual return to its pre-crisis 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 Covid19

Item Type:	Article
Additional Information:	Special Issue: Volatility and Asymmetric Models in Finance and Economics
Uncontrolled Keywords:	market volatility,covid19 pandemic,garchx,profile likelihood
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
Depositing User:	LivePure Connector
Date Deposited:	15 Nov 2024 12:30
Last Modified:	05 Dec 2024 01:31
URI:	https://ueaeprints.uea.ac.uk/id/eprint/97690
DOI:	10.3934/DSFE.2024022

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