Multi-regime Forecasting Model for the Impact of COVID-19 Pandemic on Volatility in Global Equity Markets

37 Pages Posted: 9 Jul 2020

See all articles by Nazli Sila Alan

Nazli Sila Alan

Fairfield University - Charles F. Dolan School of Business

Robert F. Engle

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); New York University (NYU) - Volatility and Risk Institute

Ahmet K Karagozoglu

Hofstra University, Zarb School of Business; New York University (NYU) - Volatility and Risk Institute

Date Written: June 15, 2020

Abstract

Using a multi-regime forecasting model, we investigate the impact of COVID-19 pandemic on market volatility. We show that daily number of active cases and the Curvature are significant predictors of daily cross-section of both realized volatility and the GJR-GARCH volatility in global equity markets. We estimate realized volatilities using intraday 5-minute returns for 46 country specific ETFs and daily GARCH volatilities are estimated using the stock market indices of 88 countries around the world. We find that stricter policy responses by individual countries, measured by higher OxCGRT Stringency Index levels, result in lower stock market volatilities while increased negative managerial sentiment, extracted from earnings call transcripts, causes an increase in realized volatilities.

Keywords: Multi-regime forecasting, COVID-19, coronavirus pandemic, volatility, Stringency Index, earnings call transcripts, sentiment, curvature

JEL Classification: G01, G12, G15

Suggested Citation

Alan, Nazli Sila and Engle, Robert F. and Karagozoglu, Ahmet K, Multi-regime Forecasting Model for the Impact of COVID-19 Pandemic on Volatility in Global Equity Markets (June 15, 2020). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3646520 or http://dx.doi.org/10.2139/ssrn.3646520

Nazli Sila Alan

Fairfield University - Charles F. Dolan School of Business ( email )

N. Benson Road
Fairfield, CT 06824
United States

Robert F. Engle

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Volatility and Risk Institute ( email )

44 West 4th Street
New York, NY 10012
United States

Ahmet K Karagozoglu (Contact Author)

Hofstra University, Zarb School of Business ( email )

Department of Finance
148 Hofstra University
Hempstead, NY 11549-1480
United States
(516) 463-5701 (Phone)
(718) 701-8331 (Fax)

HOME PAGE: http://sites.hofstra.edu/ahmet-karagozoglu

New York University (NYU) - Volatility and Risk Institute ( email )

44 West 4th Street
New York, NY 10012
United States

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