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

_IMF Working Papers, June 4, 2021_

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**Canonical URL:** [COVID-19 Containment Measures and Expected Stock Volatility: High-Frequency Evidence from Selected Advanced Economies](https://www.imf.org/en/publications/wp/issues/2021/06/04/covid-19-containment-measures-and-expected-stock-volatility-high-frequency-evidence-from-50229)

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## Bibliographic details
- Authors: Viral V. Acharya, Yang Liu, Yunhui Zhao
- Published: June 4, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513573502.001

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### Summary / Objective
- Study of the effect of COVID-19 containment measures on expected stock price volatility in some advanced economies.
- Uses event studies with hand-collected minute-level data and panel regressions with daily data.
- Authors: Viral V. Acharya, Yang Liu, Yunhui Zhao.
- Publication date: June 4, 2021.

### Methods
- Event studies using minute-level (hand-collected) data to capture high-frequency market reactions to containment announcements.
- Panel regressions using daily data to analyze broader patterns across countries and over time.

### Key Findings
- Six-month-ahead volatility indices:
  - Dropped following announcements of initial or re-imposed lockdowns.
  - Did not drop significantly following the easing of lockdowns.
- Three-month-ahead expected volatility:
  - Patterns of decline following lockdown announcements are present but not as strong as for six-month-ahead indices.
- One-month-ahead expected volatility:
  - Generally absent patterns; no consistent decline following lockdown announcements.
- Interpretation:
  - Findings provide suggestive evidence for 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.

### Policy-Relevant Implications
- Stringent containment measures can reduce medium-term market uncertainty even if they introduce short-term disruptions.
- Easing of lockdowns may not immediately reduce medium-term expected volatility; markets may not interpret easing as reducing uncertainty about outbreak control.
- Consideration of intertemporal trade-offs is important when designing containment and reopening policies given financial market reactions.

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_Source: https://www.imf.org/en/publications/wp/issues/2021/06/04/covid-19-containment-measures-and-expected-stock-volatility-high-frequency-evidence-from-50229_