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The impacts of Covid-19 pandemic on the smooth transition dynamics of stock market index volatilities for the Four Asian Tigers and Japan

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  • Day Yang Liu

    (Graduate Institute of Finance, National Taiwan University of Science and Technology, No.43, Keelung Rd., Sec.4, Da'an Dist., Taipei City 106335, Taiwan)

  • Ming Chen Chun

    (Institute of Finance, National Taiwan University of Science and Technology, No.43, Keelung Rd., Sec.4, Da'an Dist., Taipei City 106335, Taiwan)

  • Yi Kai Su

    (Institute of Finance, National Taiwan University of Science and Technology, No.43, Keelung Rd., Sec.4, Da'an Dist., Taipei City 106335, Taiwan)

Abstract

This rapid propagation of the Novel Coronavirus Disease (COVID-19) has caused the global healthcare system to break down. The infectious disease originated from East Asia and spread to the world. This unprecedented pandemic further damages the global economy. It seems highly probable that the COVID-19 recession changes stock market volatility. Therefore, this study resorts to the Generalized Autoregressive Conditional Heteroscedastic (GARCH) model with a smooth transition method to capture the influences of the COVID-19 pandemic on the dynamic structure of the stock market index volatilities for some Asian countries (the Four Asian Tigers and Japan). The empirical results show that the shocks of the COVID-19 change the dynamic volatility structure for all stock market indices. Moreover, we acquire the transition function for all stock market index volatilities and find out that most of their regime adjustment processes start following the outbreak of the COVID-19 pandemic in the Four Asian Tigers except South Korea and Japan. Additionally, the estimated transition functions show that the stock market index volatilities contain U-shaped patterns of structural changes. This article also computes the corresponding calendar dates of structure change about dynamic volatility patterns. In the light of estimation of location parameters, we demonstrate that the structure changing the date of stock market index volatility for South Korea and Japan has occurred in late 2019. Key Words: COVID-19, ST-GARCH, Four Asian Tigers, structure change

Suggested Citation

  • Day Yang Liu & Ming Chen Chun & Yi Kai Su, 2021. "The impacts of Covid-19 pandemic on the smooth transition dynamics of stock market index volatilities for the Four Asian Tigers and Japan," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(4), pages 183-194, June.
    • Handle: RePEc:rbs:ijbrss:v:10:y:2021:i:4:p:183-194
    DOI: 10.20525/ijrbs.v10i4.1177
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