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Impact of early COVID-19 pandemic on the US and European stock markets and volatility forecasting

Mohammad Mazibar Rahman, Chi Guotai, Anupam Das Gupta, Mahmud Hossain, Abedin Abedin

Economic Research-Ekonomska Istraživanja, Volume: 35, Issue: 1, Pages: 3591 - 3608

Swansea University Author: Abedin Abedin

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DOI (Published version): 10.1080/1331677x.2021.1997626

Abstract

This study examines the impact of early COVID-19 pandemic on U.S. and European stock indices, implied volatility (IV) indices, and forecasting accuracy of IV indices from daily data of January 2012 to December 2020, using an out-of-sample assessment of COVID-19. Our results show that COVID-19 death...

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Published in: Economic Research-Ekonomska Istraživanja
ISSN: 1331-677X 1848-9664
Published: Informa UK Limited 2022
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa64263
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Abstract: This study examines the impact of early COVID-19 pandemic on U.S. and European stock indices, implied volatility (IV) indices, and forecasting accuracy of IV indices from daily data of January 2012 to December 2020, using an out-of-sample assessment of COVID-19. Our results show that COVID-19 death and recovery cases have had a significant positive impact on S&P 500, DJIA and NASDAQ 100. On the other hand, VIX, VXD and VXN show a negative association. Again, we also observe the significant impact of COVID-19 on stock trading prices and volatility expectations. Furthermore, the evidence of the point forecasts is more reliable for European IV indices than for U.S. IV indices. Finally, this study validates the informational efficiency of IV indices on the financial markets and has implications for investors regarding portfolio management and investment risk minimisation in similar future pandemic situations.
Keywords: COVID-19, CCA model, implied volatility, forecasting accuracy, informational efficiency
College: Faculty of Humanities and Social Sciences
Funders: This work has been supported by the Key Programs of National Natural Science Foundation of China (the grant number 71731003), the General Programs of National Natural Science Foundation of China (the grant number 72071026, 72173096, 71971051, 71971034, and 71873103), the Youth Programs of National Natural Science Foundation of China (the grant number 71901055, 71903019), the National Natural Science Foundation of China for Regional Science Fund Project(the grant number 72161033), the Major Projects of National Social Science Foundation of China (18ZDA095). The project has also been supported by the Bank of Dalian and Postal Savings Bank of China.
Issue: 1
Start Page: 3591
End Page: 3608

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