Original scientific paper
https://doi.org/10.1080/1331677X.2021.1906730
To what extent does COVID-19 drive stock market volatility? A comparison between the U.S. and China
Xue Gao
Yixin Ren
Muhammad Umar
Abstract
This paper presents a novel wavelet-based quantile-on-quantile
method for comparing the impact of COVID-19 on stock market
volatility between the U.S. and China. Wavelet decomposition
shows that the impact has stronger regularity in the lower frequency domain. Compared with oil price fluctuations, COVID-19 is
the main reason for the sharp fluctuation of the U.S. stock market.
Unlike China, however, the strong growth of daily new cases,
which continued for months, has made the U.S. stock market
insensitive to COVID-19. In addition, the particularly loose interest
rate policy has effectively suppressed the volatility of the U.S.
stock market. However, in contrast to China, the near zero interest
rate applied by the U.S. makes it difficult to generate sufficient
monetary policy space to address a new potential crisis. The result
of this study presents the differences of the financial market
response under different epidemic management modes. Under
the background that COVID-19 is not effectively controlled, a
loose monetary policy may be an expedient measure to stabilise
the market. This is of great practical significance towards achieving epidemic control and financial market stability under the
background of the global spread of COVID-19.
Keywords
stock volatility; COVID-19; quantile-on-quantile; wavelet transform
Hrčak ID:
302230
URI
Publication date:
31.3.2023.
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