Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316592 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] East Asian Economic Review (EAER) [ISSN:] 2508-1667 [Volume:] 25 [Issue:] 2 [Year:] 2021 [Pages:] 205-230
Publisher: 
Korea Institute for International Economic Policy (KIEP), Sejong-si
Abstract: 
This study examines the impact of the number of coronavirus cases on regime-switching in stock return volatility. This study documents the empirical evidence that the COVID-19 cases had an asymmetric effect on the regime of stock return volatility. When the stock return is in the low volatility regime, the probability of switching to the high volatility regime in the next trading day increases as the number of cumulative cases increases. In contrast, in the high volatility regime, the effect of cumulative cases on the transition probability is not statistically significant. This study also documents the evidence that the government measures against the pandemic contribute to promoting the high volatility regime of the KOSPI during the pandemic. Besides, this study projects future stock prices through the Monte Carlo simulation based on the estimated parameters and the predicted number of the COVID-19 new cases. Under a scenario where the number of new cases rapidly increases, stock price indices in Korea are expected to be in a downward trend over the next three months. On the other hand, under the moderate scenario and the best scenario, the stock indices are likely to continue to rise.
Subjects: 
COVID-19
Social Distancing
Stock Return Volatility
Regime-Switching Regression
Monte Carlo Simulation
JEL: 
G11
G12
I10
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article

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