The Impact of COVID-19 Pandemic on the Smooth Transition Dynamics of Broad-based Indices Volatilities in Taiwan

Day-Yang Liu, Chun-Ming Chen and Yi-Kai Su

Journal of Applied Finance & Banking, 2020, vol. 10, issue 5, 14

Abstract: This study adopts the smooth transition Generalized Autoregressive Conditional Heteroscedastic (GARCH) model to depict the influences of the Novel Coronavirus Disease (COVID-19) on the dynamic structure of the broad-based indices volatility in Taiwan. The empirical results show that the episode of the COVID-19 switches the volatility structure for the most of indices volatilities except two industrial sub-indices, the building materials and construction index and the trading and consumer goods index. Furthermore, we obtain the transition function for all indices volatilities and catch that their regime adjustment processes start prior to the outbreak of COVID-19 pandemic in Taiwan except two industrial sub-indices, the electronics index and the shipping and transportation index. Additionally, the estimated transition functions show that the broad-based indices volatilities have U-shaped patterns of structure changes except the trading and consumer goods sub-indices. This study also calculated the corresponding calendar dates of regime change about dynamic volatility pattern. JEL classification numbers: G00, G10

Keywords: COVID-19; ST-GARCH; volatility; structure change. (search for similar items in EconPapers)
Date: 2020
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