Volatility Modeling: An Overview of Equity Markets in the Euro Area during COVID-19 Pandemic

Pierdomenico Duttilo, Stefano Antonio Gattone and Tonio Di Battista
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Pierdomenico Duttilo: DISFIPEQ, University “G. d’Annunzio” of Chieti-Pescara, 65127 Pescara, Italy
Stefano Antonio Gattone: DISFIPEQ, University “G. d’Annunzio” of Chieti-Pescara, 65127 Pescara, Italy
Tonio Di Battista: DISFIPEQ, University “G. d’Annunzio” of Chieti-Pescara, 65127 Pescara, Italy

Mathematics, 2021, vol. 9, issue 11, 1-18

Abstract: Volatility is the most widespread measure of risk. Volatility modeling allows investors to capture potential losses and investment opportunities. This work aims to examine the impact of the two waves of COVID-19 infections on the return and volatility of the stock market indices of the euro area countries. The study also focuses on other important aspects such as time-varying risk premium and leverage effect. This investigation employed the Threshold GARCH(1,1)-in-Mean model with exogenous dummy variables. Daily returns of the euro area stock markets indices from 4 January 2016 to 31 December 2020 has been used for the analysis. The results reveal that euro area stock markets respond differently to the COVID-19 pandemic. Specifically, the first wave of COVID-19 infections had a notable impact on stock market volatility of euro area countries with middle-large financial centres while the second wave had a significant impact only on stock market volatility of Belgium.

Keywords: volatility; COVID-19 pandemic; GARCH models; euro area stock indices (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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