Timing differences in the impact of Covid-19 on price volatility between assets

https://doi.org/10.1016/j.frl.2021.102401Get rights and content

Highlights

  • We propose a new Covid-19 dependent regime-switching volatility model.

  • Price volatilities of financial assets and commodities increase after Covid-19.

  • We find immediate timing of the impacts for stocks and precious metals.

  • The Covid-19’s sensitivity to the switch varies between stocks and precious metals.

Abstract

We empirically examine the impacts of Covid-19 on asset price volatilities by focusing on the timing. This paper has three contributions. First, we propose a new Covid-19 dependent regime-switching volatility model for the examination. Second, results show a shift to a higher price volatility regime from a lower one for financial assets and commodities after late February 2020 when Covid-19 spread all over the world, but the timing of the impacts varies from immediate timing for the S&P 500, the FTSE 100, the COMEX gold and silver futures to the delayed timing for the ICE Brent crude oil futures followed by the timing for the ICE UK natural gas futures. Third, we find the sensitivity of Covid-19 information to the regime switch differs between financial assets and precious metal ones which have the immediate impacts: the infection speed, i.e. the changes in the number of Covid-19 infected individuals, enhance the impacts on the tendency to a high price volatility regime for the S&P 500 and the FTSE 100; both the infection speed and the number of the deaths mitigate those impacts for the gold and silver futures, respectively during a turmoil period due to Covid-19, suggesting that the gold and silver markets are functioning as risk-hedging safety assets alternative to financial assets during Covid-19 turmoil.

JEL classification

C58
G01

Keywords

Asset price volatility
Covid-19
Regime switching
Infection speed

Cited by (0)

Views expressed in this paper are those of the author. I am grateful to Derek Bunn, Toshiki Honda, Matteo Manera, Ryozo Miura, Nobuhiro Nakamura, Kazuhiko Ōhashi, Marcel Prokopczuk, an anonymous referee and Samuel Vigne (Editor-in-Chief) for their valuable comments and suggestions. All remaining errors are mine.

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