Global Equity Market Volatility during the Initial Stages of the COVID-19 Pandemic: Drivers and Policy Responses

Abstract

The authors investigate the initial impact of the COVID-19 pandemic on global equity market volatility with particular interest on cross-country policy response differences in 86 countries across the globe. They find that reported cases, growth rate of cases, and the change in growth rate of cases significantly drove volatility during the first 100 days of the pandemic. Including policy variables obtained from Oxford COVID-19 Government Response Tracker that measure government responses in terms of containment, closure, health, and fiscal, the authors show that stricter policy responses significantly reduced the impact of the pandemic on stock market volatility in those early days, even after controlling for income levels of the countries in the sample. The authors also analyze the effect of managerial sentiment extracted from earnings call transcripts, and they find that, although managerial sentiment, both negative and uncertainty, partially subsumed the policy responses, their impact on volatility still persisted.