COVID-19 and Stock Market Volatility

24 Pages Posted: 10 Apr 2020 Last revised: 28 May 2020

Date Written: May 28, 2020

Abstract

I investigate the impact of COVID-19 cases and related deaths on the US stock market (Dow Jones and S&P500 indices), allowing for changes in trading volume and volatility expectations, as well as day-of-the-week effects. The results, based a GARCH(1,1) model and data from April 8, 2019 to April 9, 2020, suggest that changes in the number of cases and deaths in the US and six other countries majorly affected by the COVID-19 crisis do not have an impact on the US stock market returns, apart from the number of reported cases for China. However, there is evidence of a positive impact, for some countries, on the conditional heteroscedasticity of the Dow Jones and S&P500 returns. VAR models suggest that the number of reported deaths in Italy and France have a negative impact on stock market returns, and a positive impact on the VIX returns. Finally, Markov-Switching models suggest that at the end of February 2020 the magnitude of the negative impact of the VIX on stock market returns increased threefold.

Keywords: COVID-19, stock market, volatility

JEL Classification: G12

Suggested Citation

Onali, Enrico, COVID-19 and Stock Market Volatility (May 28, 2020). Available at SSRN: https://ssrn.com/abstract=3571453 or http://dx.doi.org/10.2139/ssrn.3571453

Enrico Onali (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, Avon BS8 ITH
United Kingdom

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