Volatility of the US stock market and business strategy during COVID-19

Abstract

This paper aims to measure the impact of COVID-19 and changes in economic policy uncertainty (EPU) on the US stock market volatility using Event Study, Stepwise Regression, and Vector Autoregression (VAR) models. The impact has been examined under three contexts namely inside the US, outside the US and the whole world. This study finds negative cumulative abnormal returns of the market in response to the announcement of new cases and death records whereas the market reacts positively to the announcement of the financial bailout. The negative and significant impact of reported deaths and cases on the volatility of stock indices indicates that the US stock market is highly sensitive to the COVID-19. EPU has a significant and positive impact on the volatility of the US stock market. The COVID-19, EPU, and volatility variables are cointegrated and move in a unidirectional way. This study considers the presence of a long-run relationship among the variables and concludes that the US stock market is more exposed to COVID-19 compared with the rest of the world.