The impact of COVID-19 on G7 stock markets volatility: Evidence from a ST-HAR model

Abstract

Our paper investigates the impact of COVID-19 on stock markets across G7 countries (the US, the UK, Canada, France, Germany, Italy and Japan) and sectors (Consumer Goods, Consumer Services, Financials, Healthcare, Industrials, Materials, Oil & Gas, Technology, Telecommunications and Utilities) and highlight the synchronicity and severity of this unprecedented crisis. We find strong transition evidence to a crisis regime for all countries and all sectors suggesting the universal impact of COVID-19. However, not all business sectors were affected with the same intensity or at the same time. The Health Care and Consumer services sectors were the most severely affected; a reflection of the COVID-19 drug-race and the dire situation of the airlines. Technology were among those sectors that was hit the latest and least severely, as lock downed people were looking for distraction and entertainment elsewhere. Country-wise the UK and the US were hit the hardest, while exhibiting the highest heterogeneity in their business sectors’ response; a possible reflection on the financial markets of the ambiguity of these countries’ political response to the pandemic crisis.

Keywords: COVID-19, financial markets, HAR model, smooth transition, business sectors

JEL Classification: G15, C24