Preventing crash in stock market: The role of economic policy uncertainty during COVID-19

Peng-Fei Dai, Xiong Xiong, Zhifeng Liu (), Toan Huynh () and Jianjun Sun
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Peng-Fei Dai: Tianjin University
Xiong Xiong: Tianjin University
Zhifeng Liu: Hainan University
Jianjun Sun: Hainan University

Financial Innovation, 2021, vol. 7, issue 1, 1-15

Abstract: Abstract This paper investigates the impact of economic policy uncertainty (EPU) on the crash risk of US stock market during the COVID-19 pandemic. To this end, we use the GARCH-S (GARCH with skewness) model to estimate daily skewness as a proxy for the stock market crash risk. The empirical results show the significantly negative correlation between EPU and stock market crash risk, indicating the aggravation of EPU increase the crash risk. Moreover, the negative correlation gets stronger after the global COVID-19 outbreak, which shows the crash risk of the US stock market will be more affected by EPU during the epidemic.

Keywords: COVID-19; Economic policy uncertainty; Crash risk; Skewness (search for similar items in EconPapers)
JEL-codes: D80 E60 G10 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (24)

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DOI: 10.1186/s40854-021-00248-y

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