The effect of <scp>COVID</scp>‐19 pandemic on global stock markets: Return, volatility, and bad state probability dynamics

Abstract

This study investigates the impact of COVID-19 pandemic on stock returns, conditional volatility, conditional skewness and bad state probability. This study utilizes an asymmetric exponential generalized autoregressive conditional heteroscedasticity model to capture the asymmetric effect of positive and negative shocks (news) on conditional volatility. Using a sample consisting of international stock market indices in Brazil, China, Italy, India, Germany, Russia, Spain, United Kingdom, and United States, over the period from January 1, 2013 to December 31, 2020, we find unprecedented increases in conditional volatilities and bad state probabilities across all the markets. However, this impact is not symmetric across markets. Furthermore, we find that the negative affect of deaths is more pronounced, compared to the positive impact of recovered cases.