The role of the COVID-19 pandemic in US market volatility: Evidence from the VIX index

Nicholas Apergis; Ghulam Mustafa; Shafaq Malik

doi:10.1016/j.qref.2023.03.004

The role of the COVID-19 pandemic in US market volatility: Evidence from the VIX index

Nicholas Apergis
, Ghulam Mustafa
, Shafaq Malik

Economics and International Business

University of Piraeus, Greece Department of Banking and Financial Management
University of Derby, Discipline of Accounting, Economics, and Finance, Derby Business School, Kedleston Rd, Derby DE22 1GB, United Kingdom

Research output: Contribution to journal › Article › peer-review

26 Citations (Scopus)

17 Downloads (Pure)

Abstract

We examine how the implied volatility in the US financial market has been affected by the COVID-19 pandemic. We decompose the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) into two implied volatility conditions (i.e., low and high), and COVID-19 pandemic cases and deaths into two categories (i.e., low and high). Our novel quantile-on-quantile regression approach allows us to better examine the dynamic relationship between the COVID-19 pandemic and implied volatility. Our empirical results show that increased death rates tend to increase fear in the US financial market. Specifically. we find that high COVID-19 cases have a significant impact on implied volatility under high uncertainty conditions, but low COVID-19 cases appear to have no impact on implied volatility in the US market. Our findings offer support to the US policy response by the Federal Reserve Board and the government to limit the instability effect of the COVID-19 shock on the financial markets.

Original language	English
Pages (from-to)	27-35
Journal	The Quarterly Review of Economics and Finance
Volume	89
Early online date	5 Mar 2023
DOIs	https://doi.org/10.1016/j.qref.2023.03.004
Publication status	Published - Jun 2023

Bibliographical note

© 2023 The Authors. Published by Elsevier Inc. on behalf of Board of Trustees of the University of Illinois. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/.
The version of record can be found here: https://doi.org/10.1016/j.qref.2023.03.004

Keywords

COVID-19
Forecasting
Quantile-on-quantile regression
VIX

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10.1016/j.qref.2023.03.004Licence: CC BY-NC-ND 4.0

Apergisetal_2023_AAM
© 2023 The Authors. Published by Elsevier Inc. on behalf of Board of Trustees of the University of Illinois. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/. The version of record can be found here: https://doi.org/10.1016/j.qref.2023.03.004
Accepted author manuscript, 972 KBLicence: CC BY-NC-ND 4.0

Cite this

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title = "The role of the COVID-19 pandemic in US market volatility: Evidence from the VIX index",

abstract = "We examine how the implied volatility in the US financial market has been affected by the COVID-19 pandemic. We decompose the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) into two implied volatility conditions (i.e., low and high), and COVID-19 pandemic cases and deaths into two categories (i.e., low and high). Our novel quantile-on-quantile regression approach allows us to better examine the dynamic relationship between the COVID-19 pandemic and implied volatility. Our empirical results show that increased death rates tend to increase fear in the US financial market. Specifically. we find that high COVID-19 cases have a significant impact on implied volatility under high uncertainty conditions, but low COVID-19 cases appear to have no impact on implied volatility in the US market. Our findings offer support to the US policy response by the Federal Reserve Board and the government to limit the instability effect of the COVID-19 shock on the financial markets.",

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year = "2023",

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doi = "10.1016/j.qref.2023.03.004",

language = "English",

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AU - Mustafa, Ghulam

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PY - 2023/6

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N2 - We examine how the implied volatility in the US financial market has been affected by the COVID-19 pandemic. We decompose the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) into two implied volatility conditions (i.e., low and high), and COVID-19 pandemic cases and deaths into two categories (i.e., low and high). Our novel quantile-on-quantile regression approach allows us to better examine the dynamic relationship between the COVID-19 pandemic and implied volatility. Our empirical results show that increased death rates tend to increase fear in the US financial market. Specifically. we find that high COVID-19 cases have a significant impact on implied volatility under high uncertainty conditions, but low COVID-19 cases appear to have no impact on implied volatility in the US market. Our findings offer support to the US policy response by the Federal Reserve Board and the government to limit the instability effect of the COVID-19 shock on the financial markets.

AB - We examine how the implied volatility in the US financial market has been affected by the COVID-19 pandemic. We decompose the Chicago Board Options Exchange (CBOE) Volatility Index (VIX) into two implied volatility conditions (i.e., low and high), and COVID-19 pandemic cases and deaths into two categories (i.e., low and high). Our novel quantile-on-quantile regression approach allows us to better examine the dynamic relationship between the COVID-19 pandemic and implied volatility. Our empirical results show that increased death rates tend to increase fear in the US financial market. Specifically. we find that high COVID-19 cases have a significant impact on implied volatility under high uncertainty conditions, but low COVID-19 cases appear to have no impact on implied volatility in the US market. Our findings offer support to the US policy response by the Federal Reserve Board and the government to limit the instability effect of the COVID-19 shock on the financial markets.

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The role of the COVID-19 pandemic in US market volatility: Evidence from the VIX index

Abstract

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Keywords

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