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COVID-19 Containment Measures and Expected Stock Volatility: High-Frequency Evidence from Selected Advanced Economies

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  • Viral V. Acharya
  • Yang Liu
  • Mr. Yunhui Zhao

Abstract

We study the effect of COVID-19 containment measures on expected stock price volatility in some advanced economies, using event studies with hand-collected minute-level data and panel regressions with daily data. We find that six-month-ahead volatility indices dropped following announcements of initial or re-imposed lockdowns, and that they did not drop significantly following the easing of lockdowns. Such patterns are not as strong for three-month-ahead expected volatility and generally absent for one-month-ahead expected volatility. These results provide suggestive evidence for the existence of an intertemporal trade-off: although stringent containment measures cause short-term economic disruptions, they may reduce medium-term uncertainty (reflected in expected stock volatility) by boosting markets’ confidence that the outbreak would be under control more quickly.

Suggested Citation

  • Viral V. Acharya & Yang Liu & Mr. Yunhui Zhao, 2021. "COVID-19 Containment Measures and Expected Stock Volatility: High-Frequency Evidence from Selected Advanced Economies," IMF Working Papers 2021/157, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/157
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    Cited by:

    1. Guo, Shanwen & Wang, Qibin & Hordofa, Tolassa Temesgen & Kaur, Prabjot & Nguyen, Ngoc Quynh & Maneengam, Apichit, 2022. "Does COVID-19 pandemic cause natural resources commodity prices volatility? Empirical evidence from China," Resources Policy, Elsevier, vol. 77(C).
    2. Mohammad K. Elshqirat, 2022. "Can The Easing Of COVID-19 Restrictions Enhance the Performance of Sectors in The Stock Market?," International Business Research, Canadian Center of Science and Education, vol. 15(4), pages 1-34, April.

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