Volatility during the COVID-19 Pandemic

We examine the impact of COVID-19 on market volatility in an equilibrium framework. The model combines beliefs-dependent preferences for economic dynamics and a stochastic SEIRD model with unpredictable birth/vaccine events and mitigating policies for disease propagation. The estimated model explains the realized trajectories of the S&P 500 volatility and number of new cases, identifies the source and composition of the volatility spike, while providing a good match for 25 unconditional moments of economic series. Beliefs-dependence is critical for this comprehensive explanation of short- and long-run properties. A model comparison study is performed. Mitigation policies are examined.

Keywords: volatility, COVID-19, SEIRD, shelter-in-place, jumps, beliefs-dependent preferences, mitigation.

JEL Classification: G13

Suggested Citation: Suggested Citation

Berrada, Tony and Detemple, Jerome and Rindisbacher, Marcel, Volatility during the COVID-19 Pandemic (October 28, 2022). Swiss Finance Institute Research Paper No. 23-95, Boston University Questrom School of Business Research Paper No. 4260836, Available at SSRN: https://ssrn.com/abstract=4260836 or http://dx.doi.org/10.2139/ssrn.4260836