The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery
We develop an extension to the GARCHX model - named GARCHX-NL - that captures a key stylized fact for stock market return data seen during the COVID-19 pandemic: an abrupt jump in volatility at the onset of the crisis, followed by a gradual return to its precrisis level. We apply the GARCHX-NL proce...
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| Format: | Article |
| Language: | English |
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AIMS Press
2024-11-01
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| Series: | Data Science in Finance and Economics |
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| Online Access: | https://www.aimspress.com/article/doi/10.3934/DSFE.2024022 |
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| author | Jin Zeng Yijia Zhang Yun Yin Peter G Moffatt |
| author_facet | Jin Zeng Yijia Zhang Yun Yin Peter G Moffatt |
| author_sort | Jin Zeng |
| collection | DOAJ |
| description | We develop an extension to the GARCHX model - named GARCHX-NL - that captures a key stylized fact for stock market return data seen during the COVID-19 pandemic: an abrupt jump in volatility at the onset of the crisis, followed by a gradual return to its precrisis level. We apply the GARCHX-NL procedure to daily data on various major stock market indexes. The profile likelihood method is used for estimation. The model decomposes the overall impact of the crisis into two measures: the initial impact, and the 'half-life' of the shock. We find a strong negative association between these two measures. Moreover, countries with low initial impact but a long half-life tend to be emerging markets, while those with high initial impact and short half-life tend to be developed economies with well-established stock-markets. We attribute these differences to differences in investors' sensitivity to adverse news, and to differences in the preparedness of stock markets to absorb the effects of crises such as the COVID-19 pandemic. |
| format | Article |
| id | doaj-art-6e3352209d63490b8aa1d29157fcb154 |
| institution | Kabale University |
| issn | 2769-2140 |
| language | English |
| publishDate | 2024-11-01 |
| publisher | AIMS Press |
| record_format | Article |
| series | Data Science in Finance and Economics |
| spelling | doaj-art-6e3352209d63490b8aa1d29157fcb1542025-01-24T01:03:03ZengAIMS PressData Science in Finance and Economics2769-21402024-11-014453154710.3934/DSFE.2024022The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recoveryJin Zeng0Yijia Zhang1Yun Yin2Peter G Moffatt3Business school, Guangzhou College of Technology and Business, Guangzhou, ChinaSchool of Economics, University of East Anglia, Norwich, UKFaculty of Business, City University of Macau, MacauSchool of Economics, University of East Anglia, Norwich, UKWe develop an extension to the GARCHX model - named GARCHX-NL - that captures a key stylized fact for stock market return data seen during the COVID-19 pandemic: an abrupt jump in volatility at the onset of the crisis, followed by a gradual return to its precrisis level. We apply the GARCHX-NL procedure to daily data on various major stock market indexes. The profile likelihood method is used for estimation. The model decomposes the overall impact of the crisis into two measures: the initial impact, and the 'half-life' of the shock. We find a strong negative association between these two measures. Moreover, countries with low initial impact but a long half-life tend to be emerging markets, while those with high initial impact and short half-life tend to be developed economies with well-established stock-markets. We attribute these differences to differences in investors' sensitivity to adverse news, and to differences in the preparedness of stock markets to absorb the effects of crises such as the COVID-19 pandemic.https://www.aimspress.com/article/doi/10.3934/DSFE.2024022market volatilitycovid-19 pandemicgarchgarchxprofile likelihood |
| spellingShingle | Jin Zeng Yijia Zhang Yun Yin Peter G Moffatt The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery Data Science in Finance and Economics market volatility covid-19 pandemic garch garchx profile likelihood |
| title | The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery |
| title_full | The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery |
| title_fullStr | The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery |
| title_full_unstemmed | The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery |
| title_short | The effect of the Covid pandemic on stock market volatility: Separating initial impact from time-to-recovery |
| title_sort | effect of the covid pandemic on stock market volatility separating initial impact from time to recovery |
| topic | market volatility covid-19 pandemic garch garchx profile likelihood |
| url | https://www.aimspress.com/article/doi/10.3934/DSFE.2024022 |
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