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Volatility during the COVID-19 Pandemic

Author

Listed:
  • Tony Berrada

    (University of Geneva; Swiss Finance Institute)

  • Jerome Detemple

    (Boston University)

  • Marcel Rindisbacher

    (Boston University)

Abstract

We examine the impact of COVID-19 on market volatility in an equilibrium framework. The model combines beliefs-dependent preferences for economic dynamics and a stochastic SEIRD model with unpredictable birth/vaccine events and mitigating policies for disease propagation. The estimated model explains the realized trajectories of the S&P 500 volatility and number of new cases, identifies the source and composition of the volatility spike, while providing a good match for 25 unconditional moments of economic series. Beliefs-dependence is critical for this comprehensive explanation of short- and long-run properties. A model comparison study is performed. Mitigation policies are examined.

Suggested Citation

  • Tony Berrada & Jerome Detemple & Marcel Rindisbacher, 2023. "Volatility during the COVID-19 Pandemic," Swiss Finance Institute Research Paper Series 23-95, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2395
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4260836
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    More about this item

    Keywords

    volatility; COVID-19; SEIRD; shelter-in-place; jumps; beliefs-dependent preferences; mitigation.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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