Spillover of COVID-19: Impact on Stock Market Volatility

This study investigates the impact of the novel coronavirus (COVID-19) on stock market volatility for the major G7 stock market indices. The analysis consists of several elements: first, we assess the impact of coronavirus on the standard deviations of the seven indices; second, we analyze the influence of the number of daily new cases and the growth rate of daily new cases on the standard deviations of these index returns; and third, we assess the impact of coronavirus on stock market volatility for these indices using GARCH and GJR-GARCH models. We find that the minimum value for each index occurred in March-2020, with all indices reaching 20-year lows during this month, with the single exception of Japan (Nikkei 225), whose minimum returns value occurred during Oct-2008. Furthermore, the results of the regression analysis reveal that the COVID-19 dummy variable, the number of daily new cases, and the growth rate of daily new cases all had a significant positive impact on G7 stock market volatility. Finally, the GARCH and GJR-GARCH models reveal that the COVID-19 coefficients in the conditional variance equation had a significant positive impact on the conditional variance for all seven stock indices, further indicating that COVID-19 has increased market volatility.