The impact of Covid-19 on G7 stock markets volatility: Evidence from a ST-HAR model

• Published in: International review of financial analysis 2021-03, Vol.74, p.101671-101671, Article 101671
• Main Authors: Izzeldin, Marwan, Muradoğlu, Yaz Gülnur, Pappas, Vasileios, Sivaprasad, Sheeja
• Format: Article
• Language: English
• Subjects: Business sectors; Covid-19; Financial markets; HAR model; Smooth transition
• ISSN: 1057-5219; 1873-8079; 1873-8079
• DOI: 10.1016/j.irfa.2021.101671

We investigate the impact of Covid-19 on stock markets across G7 countries and their business sectors. We highlight the synchronicity and severity of this unprecedented crisis. We find strong transition evidence to a crisis regime in all countries and sectors, yet crisis intensity and timings vary. The Health Care and Consumer services sectors were the most severely affected; a reflection of the Covid-19 drug-race and international travel restrictions. The Technology sector was hit the latest and least severely, as imposed lockdown measures forced people to explore various web-based entertainment and distraction options. Country-wise the UK and the US were the most affected with the highest heterogeneity in their business sectors' response; a possible reflection of the ambiguity in the initial response and adoption of lockdown measures. Financial markets' response to Covid-19 is akin to response in previous financial crisis rather than previous pandemics. A series of robustness checks confirms our findings. •We investigate the Covid-19 financial crisis on G7 countries and 10 sectors•A smooth transition HAR model estimates intensity and timeliness of the crisis•Health Care and Consumer Services were hit the hardest•Technology was the last and least adversely affected sector•Countries that engaged sooner have initially weathered the financial crisis better