IMF Working Papers

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

By Viral V. Acharya, Yang Liu, Yunhui Zhao

June 4, 2021

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Viral V. Acharya, Yang Liu, and Yunhui Zhao. COVID-19 Containment Measures and Expected Stock Volatility: High-Frequency Evidence from Selected Advanced Economies, (USA: International Monetary Fund, 2021) accessed December 9, 2024

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Summary

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.

Subject: Economic sectors, Financial crises

Publication Details

  • Pages:

    43

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2021/157

  • Stock No:

    WPIEA2021157

  • ISBN:

    9781513573502

  • ISSN:

    1018-5941