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Volatility Modeling: An Overview of Equity Markets in the Euro Area during COVID-19 Pandemic

Author

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  • Pierdomenico Duttilo

    (DISFIPEQ, University “G. d’Annunzio” of Chieti-Pescara, 65127 Pescara, Italy)

  • Stefano Antonio Gattone

    (DISFIPEQ, University “G. d’Annunzio” of Chieti-Pescara, 65127 Pescara, Italy)

  • Tonio Di Battista

    (DISFIPEQ, University “G. d’Annunzio” of Chieti-Pescara, 65127 Pescara, Italy)

Abstract

Volatility is the most widespread measure of risk. Volatility modeling allows investors to capture potential losses and investment opportunities. This work aims to examine the impact of the two waves of COVID-19 infections on the return and volatility of the stock market indices of the euro area countries. The study also focuses on other important aspects such as time-varying risk premium and leverage effect. This investigation employed the Threshold GARCH(1,1)-in-Mean model with exogenous dummy variables. Daily returns of the euro area stock markets indices from 4 January 2016 to 31 December 2020 has been used for the analysis. The results reveal that euro area stock markets respond differently to the COVID-19 pandemic. Specifically, the first wave of COVID-19 infections had a notable impact on stock market volatility of euro area countries with middle-large financial centres while the second wave had a significant impact only on stock market volatility of Belgium.

Suggested Citation

  • Pierdomenico Duttilo & Stefano Antonio Gattone & Tonio Di Battista, 2021. "Volatility Modeling: An Overview of Equity Markets in the Euro Area during COVID-19 Pandemic," Mathematics, MDPI, vol. 9(11), pages 1-18, May.
    • Handle: RePEc:gam:jmathe:v:9:y:2021:i:11:p:1212-:d:563300
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    2. Hussein Hassan & Minko Markovski & Alexander Mihailov, 2023. "A TGARCH Quantification of the Average Effect of COVID-19 Cases on Share Prices by Sector: Comparing the US and the UK," Economics Discussion Papers em-dp2023-15, Department of Economics, University of Reading.
    3. Szczygielski, Jan Jakub & Charteris, Ailie & Bwanya, Princess Rutendo & Brzeszczyński, Janusz, 2023. "Which COVID-19 information really impacts stock markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 84(C).

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