Impact of Early COVID-19 Pandemic on the US and European Stock Markets and Volatility Forecasting

40 Pages Posted: 25 Oct 2020

See all articles by Mohammad Mazibar Rahman

Mohammad Mazibar Rahman

Hajee Mohammad Danesh Science & Technology University

Anupam Das Gupta

University of Chittagong

Mohammed Mohi Uddin

University of Illinois at Springfield

Mahmud Hossain

King Fahd University of Petroleum & Minerals - Department of Accounting and MIS

Mohammad Zoynul Abedin

Hajee Mohammad Danesh Science and Technology University; Dalian Maritime University

Date Written: October 17, 2020

Abstract

This study examines the impact of COVID-19 on US and European stock indexes, implied volatility (IV) indices, and proposes forecasting accuracy of IV indices form daily data of March 2005 to May 2020, having an out-of-sample assessment of COVID-19. The empirical findings of Canonical Correlation Analysis (CCA) contribute significant insight into COVID-19 over the US and European stock indexes. This result shows that the death and recovery cases of COVID-19 have a significant positive impact of VIX, VXD, and VXN; however, the S&P 500, DJIA, and NASDAQ 100 show a negative association. Again, we also observe the significant impact of COVID-19 in stock trading prices and volatility expectations. The evidence of the point forecasts is more reliable for European IV indices than the US IV indices. Finally, this study validates IV indices' informational efficiency in the financial markets and suggests investors about portfolio management and investment risk minimization for similar future pandemic situations.

Keywords: COVID-19, General linear model, Implied volatility, Forecasting accuracy

JEL Classification: G, M

Suggested Citation

Rahman, Mohammad Mazibar and Gupta, Anupam Das and Uddin, Mohammed Mohi and Hossain, Mahmud and Abedin, Mohammad Zoynul, Impact of Early COVID-19 Pandemic on the US and European Stock Markets and Volatility Forecasting (October 17, 2020). Available at SSRN: https://ssrn.com/abstract=3713671 or http://dx.doi.org/10.2139/ssrn.3713671

Mohammad Mazibar Rahman (Contact Author)

Hajee Mohammad Danesh Science & Technology University ( email )

Dinajpur, 5200
Bangladesh
8801722486836 (Phone)

Anupam Das Gupta

University of Chittagong ( email )

Hathazari, Chittagong, Bangladesh
Chittagong, Chittagong 4331
Bangladesh

Mohammed Mohi Uddin

University of Illinois at Springfield ( email )

University of Illinois at Springfield
One University Plaza
Sprinfield, IL 62703
United States

Mahmud Hossain

King Fahd University of Petroleum & Minerals - Department of Accounting and MIS ( email )

Department of Accounting and MIS
College of Industrial Management. KFUPM Box 5076
Dhahran, 31261
Saudi Arabia
+966 13 860 8496 (Phone)
+966 13 860 3489 (Fax)

HOME PAGE: http://www4.kfupm.edu.sa/cim/acct_mis.html

Mohammad Zoynul Abedin

Hajee Mohammad Danesh Science and Technology University ( email )

Dinajpur Hwy
Basherhat Dhaka, 5200
Bangladesh

Dalian Maritime University ( email )

1 Linghai Road
Dalian, 116026
China

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