The COVID-19 and Stock Return Volatility: Evidence from South Korea

26 Pages Posted: 30 Jun 2021

See all articles by Dong-Jin Pyo

Dong-Jin Pyo

Changwon National University

Date Written: June 30, 2021


This study examines the impact of the number of coronavirus cases on regime-switching in stock return volatility. This study documents the empirical evidence that the COVID-19 cases had an asymmetric effect on the regime of stock return volatility. When the stock return is in the low volatility regime, the probability of switching to the high volatility regime in the next trading day increases as the number of cumulative cases increases. In contrast, in the high volatility regime, the effect of cumulative cases on the transition probability is not statistically significant. This study also documents the evidence that the government measures against the pandemic contribute to promoting the high volatility regime of the KOSPI during the pandemic. Besides, this study projects future stock prices through the Monte Carlo simulation based on the estimated parameters and the predicted number of the COVID-19 new cases. Under a scenario where the number of new cases rapidly increases, stock price indices in Korea are expected to be in a downward trend over the next three months. On the other hand, under the moderate scenario and the best scenario, the stock indices are likely to continue to rise.

Keywords: COVID-19, Social Distancing, Stock Return Volatility, Regime-Switching Regression, Monte Carlo Simulation

JEL Classification: G11, G12, I10

Suggested Citation

Pyo, Dong-Jin, The COVID-19 and Stock Return Volatility: Evidence from South Korea (June 30, 2021). East Asian Economic Review Vol. 25 No. 2 (June 2021) 205-230,, Available at SSRN:

Dong-Jin Pyo (Contact Author)

Changwon National University ( email )

Korea, Republic of (South Korea)

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