The COVID-19 and Stock Return Volatility: Evidence from South Korea
Pyo, Dong-Jin | June 2021
Abstract
This study examines the impact of the number of coronavirus cases on regime-switching in stock return volatility. This study documents the empirical evidence that the COVID-19 cases had an asymmetric effect on the regime of stock return volatility. When the stock return is in the low volatility regime, the probability of switching to the high volatility regime in the next trading day increases as the number of cumulative cases increases. In contrast, in the high volatility regime, the effect of cumulative cases on the transition probability is not statistically significant. This study also documents the evidence that the government measures against the pandemic contribute to promoting the high volatility regime of the KOSPI during the pandemic. Besides, this study projects future stock prices through the Monte Carlo simulation based on the estimated parameters and the predicted number of the COVID-19 new cases. Under a scenario where the number of new cases rapidly increases, stock price indices in Korea are expected to be in a downward trend over the next three months. On the other hand, under the moderate scenario and the best scenario, the stock indices are likely to continue to rise.
Citation
Pyo, Dong-Jin. 2021. The COVID-19 and Stock Return Volatility: Evidence from South Korea. © Korea Institute for International Economic Policy. http://hdl.handle.net/11540/13874.ISSN
PISSN 2508‐1640
EISSN 2508‐1667
Keywords
Public Financial Management
Financial System
Financial Statistics
Financial Stability
Financial Management System
Financial Restructuring
Capital Market Development
Market Development
Economics
Erosion
International Economics
Macroeconomic
Macroeconomic Analysis
Performance Evaluation
Impact Evaluation
Foreign and Domestic Financing
Foreign Direct Investment
Financial Statements
Pension Funds
Mutual Funds
Social Equity
Financial Aspects
Fiscal Policy
International Financial Market
Multilateral Financial Institutions
Economic Recession
Market
Crisis
Economic indicators
Growth models
Gross domestic product
Macroeconomics
Economic forecast
Business Financing
Investment Requirements
Digital currency
Labour market
Income
Inequality
Labor policy
Manpower policy
Business recessions
Multilateral development banks
Regulatory reform
Capital
Exports
Economic development projects
Economic policy
Economic forecasting
Investment Requirements
Banks
International banks and banking
Capital movements
Central banks and banking
Bills of exchange
Swaps
Banks and banking
Financial crisis
Credit control
Credit allocation
Capital market
International liquidity
Liquidity
Exchange rate
Pension plans
Individual retirement accounts
Employee pension trusts
Investment management
Investments
Multiemployer pension plans
Keogh plans
Individual retirement accounts
Pension plans
Employee pension trusts
Pension trusts
Stocks
Stock return volatility
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