Abstract
This rapid propagation of the Novel Coronavirus Disease (COVID-19) has caused the global healthcare system to break down. The infectious disease originated from East Asia and spread to the world. This unprecedented pandemic further damages the global economy. It seems highly probable that the COVID-19 recession changes stock market volatility. Therefore, this study resorts to the Generalized Autoregressive Conditional Heteroscedastic (GARCH) model with a smooth transition method to capture the influences of the COVID-19 pandemic on the dynamic structure of the stock market index volatilities for some Asian countries (the Four Asian Tigers and Japan). The empirical results show that the shocks of the COVID-19 change the dynamic volatility structure for all stock market indices. Moreover, we acquire the transition function for all stock market index volatilities and find out that most of their regime adjustment processes start following the outbreak of the COVID-19 pandemic in the Four Asian Tigers except South Korea and Japan. Additionally, the estimated transition functions show that the stock market index volatilities contain U-shaped patterns of structural changes. This article also computes the corresponding calendar dates of structure change about dynamic volatility patterns. In the light of estimation of location parameters, we demonstrate that the structure changing the date of stock market index volatility for South Korea and Japan has occurred in late 2019.
Highlights
The outbreak of COVID-19 brings about dramatic changes to the global financial markets
Even though both monetary and fiscal policy could be viewed as a way to stimulate economic development, (Teresiene et al, 2021) indicate that the monetary policy has limited possibilities to support the economy
We first resort the modified Generalized Autoregressive Conditional Heteroscedastic (GARCH) model with exogenous trigger variable to fit the stock market index volatilities in the Four Asian Tigers and Japan, because this model specification is convenient to use as the break time is certain
Summary
The outbreak of COVID-19 brings about dramatic changes to the global financial markets. We make an attempt to investigate whether the COVID-19 pandemic could trigger and bring distinct turmoil on volatility structure of stock market index for the Four Asian Tigers. We first resort the modified GARCH model with exogenous trigger variable to fit the stock market index volatilities in the Four Asian Tigers and Japan, because this model specification is convenient to use as the break time is certain.. Our empirical findings report that the COVID-19 pandemic changes the dynamic unconditional volatility from the low level to high one for all stock market indices during entire sample period. We observe that the episode of COVID-19 pandemic causes the reactions of stock market index volatilities become more sensitive to information for Taiwan and Hong Kong.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Journal of Research in Business and Social Science (2147- 4478)
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
