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Uncertainty Related to Infectious Diseases and Forecastability of the Realised Volatility of US Treasury Securities

Author

Listed:
  • Sisa Shiba

    (Department of Economics, University of Pretoria, Private Bag X20, Hateld 0028, South Africa)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield, 0028, South Africa)

Abstract

This paper aims to examine the predictive power of the daily newspaper-based index uncertainty related to infectious diseases (EMVID) for the US Treasury securities’ realised volatility (RV) using the heterogonous autoregressive volatility (HAV-RV) model. In our out-of-sample forecast, we find strong significant evidence on the role of the EMVID index in forecasting the volatility of the US Treasury securities in the short-, medium-, and long-run horizons except for the US 2-Year Treasury-Note (T-Note) Futures. Assessing the EMVID index role during the COVID-19 episode, we find that even in this short period the index role in predicting the US Treasury securities is highly significant. These findings have important implications for portfolio managers and investors in times of unprecedented levels of uncertainty resulting from epidemic and pandemic diseases.

Suggested Citation

  • Sisa Shiba & Rangan Gupta, 2021. "Uncertainty Related to Infectious Diseases and Forecastability of the Realised Volatility of US Treasury Securities," Working Papers 202140, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202140
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    Keywords

    Uncertainty; Infectious Diseases; COVID-19; US Treasury Securities; Realized Volatility; Forecasting;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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