Original scientific paper
https://doi.org/10.1080/1331677X.2021.1997626
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
Mohammad Zoynul Abedin
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 COVID19. 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
Hrčak ID:
302614
URI
Publication date:
31.3.2023.
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